Which of the following is correct about the operations of the Federal Reserve?
A) Federal Reserve purchases of securities will increase the reserves available to commercial banks.
B) Federal Reserve purchases of securities exert upward pressure on interest rates in the short run.
C) The Federal Reserve System determines the ratio of currency held by the public to the money supply (M1).
D) Federal Reserve purchases of securities will decrease the reserves available to commercial banks.

Question

Quizplus · Accepted Answer

When the Federal Reserve purchases securities, it pays for them by increasing the reserves of the seller's bank. This increases the overall reserves available to commercial banks, allowing them to potentially lend out more money.

Which of the Following Is Correct About the Operations of the Federal