When the fed sells government securities in the open market, it: A) decreases th

Question

When the fed sells government securities in the open market, it: A) decreases the excess reserves of the baking system, reducing excess reserves for overnight loan in the Federal funds market, and thus lowering the federal funds rate. B) increases the excess reserves of the baking system, reducing excess reserves for overnight loan in the Federal funds market, and thus lowering the federal funds rate. C) decreases the excess reserves of the baking system, reducing excess reserves for overnight loan in the Federal funds market, and 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, and thus raising the federal funds rate.

Explanation / Answer

D) increases the excess reserves of the banking system, raising excess reserves for overnight loan in the Federal funds market, and thus raising the federal funds rate. Since in the open market, the reserves of bank systems increases

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