Asked by Jamie Osborn on Jun 17, 2024
Verified
The Fed's purchase of U.S.government securities constitutes a(n) :
A) contractionary policy because it lowers the amount of total reserves in the banking system.
B) contractionary policy because it lowers the amount of excess reserves in the banking system.
C) expansionary policy because it raises the amount of total reserves in the banking system.
D) expansionary policy because it lowers the amount of total reserves in the banking system.
E) expansionary policy because it raises the amount of required reserves in the banking system.
Reserve Requirement Ratio
The fraction of deposits which a bank is mandated to hold in reserve, either in its own vaults or with the central bank, rather than lending to consumers.
Checkable Deposits
Bank accounts that allow the account holder to write checks or use debit cards to make payments directly from the account.
New Reserves
Resources or assets that have been newly discovered or identified, often referring to natural resources like oil, gas, or minerals that can be economically extracted.
- Learn about the impact of central banks' maneuvers, like open market operations, on both the reserves of the banking system and the overall volume of money supply.
Verified Answer
ST
Shawntina Trotter-DanielJun 24, 2024
Final Answer :
C
Explanation :
The purchase of U.S. government securities by the Fed increases the amount of total reserves in the banking system, which is an expansionary policy. This is because the banks now have more reserves to lend out, which stimulates economic activity.
Learning Objectives
- Learn about the impact of central banks' maneuvers, like open market operations, on both the reserves of the banking system and the overall volume of money supply.