The Fed buys securities and gives a bond dealer a check for the amount. After th

Question

The Fed buys securities and gives a bond dealer a check for the amount. After the check has cleared, a. reserves remain unchanged because the increase of reserves at the dealer's bank are offset by an increase in reserves at the Fed. b. reserves have fallen by the amount of the check because the Fed clears the check by reducing the bank's deposits at the Fed c. reserve have risen by the amount of the check because the Fed clears the check by increasing the amount of the bank's deposits with the Fed d. reserves have fallen by the amount of the reserves times the required ratio and the money supply increases by the differences between the amount of the check and the increase in the reserves

Explanation / Answer

Answer : Option ‘C’ is Correct.

Reserves have risen by the amount of the check because the Fed clears the check by increasing the amount of the bank's deposits with the Fed.

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