The Federal Reserve buys Treasury Bills in the open market. This will tend to:

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Starting with the scenario: the Federal Reserve buys Treasury Bills in the open market, which is an open-market purchase. This injects reserve balances into the banking system as the Fed credits the accounts of the selling banks, thereby increasing liquidity in the system.
Option a: 'cause a decrease in the growth of deposits and loans.' On the contrary, with more reserves, banks have greater capacity to create deposits through lending, which tends to raise, not decrease, the growth of deposits and loans. This choice misstates the typical effect of an open-market purchase on credit expansion.
Option b: 'decrease the price of treasury bills.' When the Fed buys Treasuries, demand for them rises, which typically raises their price and lowers their yield. So this option is incorrect because the operation tends to push Treasury bill prices up (and yields down), not down.
Option c: 'cause reserves held at the Federal Reserve to decrease.' The opposite is true: open-market purchases increase reserves in the banking system. Therefore, this statement is factually wrong about the direction of reserve changes.
Option d: 'increase the available for use funds with banks and dealers involved in the transaction.' This describes the direct monetary effect of an open-market purchase: reserves rise in banks and dealers, expanding the amount of funds readily available for use in the financial system. This is the correct interpretation of the operation.

BFF5916 - S1 2025 (Online Learning) Exercise N. 2 - Week 5-6

The Federal Reserve buys Treasury Bills in the open market. This will tend to:

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BFF5916 - S1 2025 (Online Learning) Exercise N. 2 - Week 5-6

The Federal Reserve buys Treasury Bills in the open market. This will tend to:

View Explanation

Log in for full answers

Similar Questions

If the Federal Reserve wants to lower the federal funds rate, it will ____.

If the central bank wants to achieve the results shown in Panel (a), it should

An open market sale by the Federal Reserve ______ the monetary base and ______ the size of the Fed's balance sheet.

3e) In response to part (d), the Federal Reserve buys bonds and increases the supply of reserves in the banking system.

3e) In response to part (d), the Federal Reserve [ Select ] buys sells issues bonds and [ Select ] increases decreases doesn't change the supply of reserves in the banking system.

An open market sale by the Federal Reserve ______ the monetary base and ______ the size of the Fed's balance sheet.

The Federal Reserves usually implements its open market operations by buying and selling

More Practical Tools for Students Powered by AI Study Helper

Making Your Study Simpler

An open market sale by the Federal Reserve the monetary base and the size of the Fed's balance sheet.

An open market sale by the Federal Reserve the monetary base and the size of the Fed's balance sheet.