An open market purchase of securities by the Fed
A) increases banks' reserves and decreases banks' securities.
B) decreases banks' reserves and increases banks' securities.
C) decreases banks' total assets.
D) involves a bank purchasing government securities from the Fed.

Question

Quizplus · Accepted Answer

When the Federal Reserve (Fed) conducts an open market purchase of securities, it buys government securities from banks. This action increases the reserves that banks hold at the Fed, as the Fed pays the banks for these securities. Consequently, while banks' reserves increase, their holdings of securities decrease.

An Open Market Purchase of Securities by the Fed