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

Question

BlackTom AI · Accepted Answer

In this item, we are examining the Federal Reserve's actions in an open-market operation and the resulting change in reserves.
First, consider the mechanism: when the Fed conducts an open-market purchase, it buys government bonds from banks or the public. This transaction adds reserves to the banking system because the Fed credits the seller's account at the Fed, increasing the total reserves held by banks.
Second, the consequence of adding reserves is that the supply of reserves in the banking system rises. With more reserves available, banks have greater capacity to extend loans, which can expand the money supply through the money multiplier, and tends to put downward pressure on the federal funds rate.
Regarding the specific phrasing presented—'buys' and 'increases'—these verbs align with standard textbook descriptions of the Fed's actions and their effects:
- 'buys' correctly names the action the Fed takes in an open-market operation.
- 'increases' correctly describes the resulting change in the level of reserves in the banking system.
Since no alternative options are provided to compare against, we focus on the logical link: open-market purchases (buys) lead to an increase in reserve holdings (increases), which in turn influences liquidity and the money supply.
If there were potential distractors, they would likely involve the reverse operation (sells) or the opposite effect on reserves (decreases), which would contradict the mechanics of open-market purchases.

2025Fall-ECN3615-01 Practice Final Exam

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

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

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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.

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2025Fall-ECN3615-01 Practice Final Exam

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

查看解析

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类似问题

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 [ 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

The Federal Reserve Trading Desk at the New York Fed implements the FOMC policy directive by buying or selling Blank ______ on the over the counter market.

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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.