When the Fed makes open-market sales bank
A)withdrawals and lending increase.
B)withdrawals increase and lending decreases.
C)deposits and lending increase.
D)deposits increase and lending decreases.

Question

Quizplus · Accepted Answer

When the Fed makes open-market sales, it means that it is selling government securities to banks. As a result, the banks' reserves decrease, leading to a decrease in their ability to lend. This causes a decrease in lending and an increase in withdrawals, as people may seek to withdraw their deposits since banks have less available funds to lend. Therefore, the correct answer is B - withdrawals increase and lending decreases.

When the Fed Makes Open-Market Sales Bank