When the Fed ________ securities in an open market operation,banks' reserves ________,and therefore lending ________.
A)sells;increase;increases
B)buys;increase;increases
C)sells;decrease;increases
D)buys;decrease;decreases
E)buys;do not change;does not change

Question

Quizplus · Accepted Answer

When the Fed buys securities in an open market operation, banks' reserves increase, and therefore lending increases. This is because banks now have more funds available to lend out to borrowers. The other answer choices involve actions that would have the opposite effect on banks' reserves and lending.

When the Fed ________ Securities in an Open Market Operation,banks