If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would
A) increase by $5 billion
B) decrease by $5 billion.
C) be added to net worth.
D) remain the same.

Question

Quizplus · Accepted Answer

When the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would decrease by $5 billion because the banks would use their reserves to purchase the securities from the Federal Reserve.

If the Federal Reserve System Sells $5 Billion of Government