Asked by Peter Manyang Bichok on Jun 29, 2024
Verified
If the Fed buys government securities from depository institutions,the effect will be to
A) reduce loans and reduce the money supply.
B) reduce loans and increase the money supply.
C) increase loans and reduce the money supply.
D) increase loans and increase the money supply.
E) leave both the money supply and the loan balances unchanged.
Government Securities
Financial instruments issued by the government to borrow money from investors that usually come with a promised set of future payments.
Depository Institutions
Financial institutions that accept deposits from the public, such as banks, credit unions, and savings and loan associations.
Money Supply
The total amount of money—cash, coins, and balances in bank accounts—in circulation within a country's economy at a specific time.
- Analyze the effects of altering reserve ratios on the banking sector and the availability of currency.
Verified Answer
WM
WALEED MUGHALJul 03, 2024
Final Answer :
D
Explanation :
When the Fed buys government securities from depository institutions, it increases the reserves of those institutions. This, in turn, enables them to extend more loans, which increases the money supply.
Learning Objectives
- Analyze the effects of altering reserve ratios on the banking sector and the availability of currency.