Which of the following is likely to happen if the quantity of bank reserves held at the Fed increases?
A) Bank deposits decrease.
B) The real interest rate increases.
C) The stock of money in the economy increases.
D) The number of loans issued by banks decreases.

Question

Quizplus · Accepted Answer

If the quantity of bank reserves held at the Fed increases, it means that banks have less money to lend out. As a result, they may need to reduce the number of loans issued, which can reduce the stock of money in the economy. However, if the Fed conducts open market operations to increase bank reserves, it can purchase securities from banks, which can increase the stock of money in the economy. Therefore, the stock of money in the economy can increase if the quantity of bank reserves held at the Fed increases.

Which of the Following Is Likely to Happen If the Quantity