When the Fed conducts an open market operation by purchasing securities from a bank,
A) public holdings of securities increase.
B) the bank's deposits increase but its reserves do not change.
C) the bank's deposits increase but its reserves decrease.
D) the bank's reserves increase.

Question

Quizplus · Accepted Answer

When the Federal Reserve purchases securities from a bank, the bank receives payment for these securities, which increases the bank's reserves. This is a primary tool used by the Fed to inject liquidity into the banking system.

When the Fed Conducts an Open Market Operation by Purchasing