Which of the following is correct? When the Federal Reserve buys government securities from the public, the money supply
A) contracts and commercial bank reserves increase.
B) expands and commercial bank reserves decrease.
C) contracts and commercial bank reserves decrease.
D) expands and commercial bank reserves increase.

Question

Quizplus · Accepted Answer

When the Federal Reserve buys government securities from the public, it injects money into the economy and thus the money supply expands. This also increases the amount of reserves that banks hold at the Federal Reserve, thus commercial bank reserves increase.

Which of the Following Is Correct? When the Federal Reserve