When the Fed Buys Securities from a Bank, What Happens

question 501

Essay

When the Fed buys securities from a bank, what happens to the monetary base and the quantity of money? Which changes by more or do both change by the same amount?

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Definitions:

Drive

A psychological state that, by creating arousal, motivates an organism to engage in a behavior to satisfy a need.

Stabilizes Conditions

Actions or interventions that make a situation or condition more steady and less likely to change.

Arousal

Physiological activation (such as increased brain activity) or increased autonomic responses (such as increased heart rate, sweating, or muscle tension).

Incentives

External objects or external goals, rather than internal drives, that motivate behaviors.