13) Open market purchase will result in: A) increase in bank reserves and a decr

Question

13) Open market purchase will result in: A) increase in bank reserves and a decrease in the federal funds rate. B) increase in bank reserves and an increase in the federal funds rate. C) decrease in bank reserves and a decrease in the federal funds rate. ) decrease in bank reserves and an increase in the federal funds rate. ncrease in government expenditure would shift the: demand curve rightward. demand curve leftward. supply curve rightward. ate supply curve leftward. increase in taxes would shift the: y aggregate demand curve rightward ) aggregate demand curve leftward:

Explanation / Answer

13> A is the correct option

Reason

Bank reserves increase as a result of purchase as the supply of money rises. If the Federal Reserve wishes to expand the economy and decrease the federal funds rate, it purchases government securities and increases the amount of reserves that banks have available to lend, which pushes the federal funds rate down.

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