When the Fed Buys Government Securities in the Open Market

question 160

Multiple Choice

When the Fed buys government securities in the open market, it:

• A) Decreases the excess reserves of the banking system, reducing excess reserves for overnight loan in the Federal funds market, thus lowering the Federal funds rate
• B) Increases the excess reserves of the banking system, reducing excess reserves for overnight loan in the Federal funds market, thus lowering the Federal funds rate
• C) Decreases the excess reserves of the banking system, reducing excess reserves for overnight loan in the Federal funds market, thus increasing the Federal funds rate
• D) Increases the excess reserves of the banking system, raising excess reserves for overnight loan in the Federal funds market, thus lowering the Federal funds rate

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Definitions:

Deduction

A logical process wherein a conclusion follows necessarily from the premises presented, if the premises are true, the conclusion must also be true.

Theory of Planned Behavior

A psychological theory that links beliefs and behavior, suggesting that an individual's behavioral intentions are shaped by their attitudes, subjective norms, and perceived control over the behavior.

Health and Safety

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