If the Fed Sells Government Securities to the General Public

question 18

Multiple Choice

If the Fed sells government securities to the general public in the open market:

• A) The Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will increase commercial bank reserves at the Fed
• B) The Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will decrease commercial bank reserves at the Fed
• C) The public gives the securities to the Fed in exchange for a Fed check, which when deposited at commercial banks will increase their reserves at the Fed
• D) The public gives the securities to the Fed in exchange for a Fed check, which when deposited at commercial banks will decrease their reserves at the Fed

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Definitions:

General Obligation Bonds

Long-term loans issued by municipalities that are backed by the general tax revenue of the municipality rather than revenue from a specific project.

Indirect Transfer

The movement of goods or services through an intermediary before reaching the final consumer, rather than a direct transaction from producer to consumer.

Treasury Bills

Short-term government securities issued at a discount from the face value, maturing in one year or less, used as a tool for managing national finance.

U.S. Treasury

The federal department responsible for managing government revenue, issuing currency, and executing fiscal policy in the United States.