The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits and reserves of commercial banks: Group of answer choices: and reserves of c... The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits and reserves of commercial banks: Group of answer choices: and reserves of commercial banks both decrease; of commercial banks are both unchanged; of commercial banks are unchanged, but their reserves increase; of commercial banks are unchanged, but their reserves decrease.
Understand the Problem
The question is asking about the effect of the Federal Reserve Banks selling government securities to the public on checkable deposits and reserves of commercial banks. Understanding this involves grasping concepts related to monetary policy and the banking system.
Answer
Both decrease.
The checkable deposits and reserves of commercial banks both decrease.
Answer for screen readers
The checkable deposits and reserves of commercial banks both decrease.
More Information
When the Federal Reserve sells government securities to the public, the money paid by the purchasers decreases their deposits in banks, leading to a reduction in both checkable deposits and reserves in commercial banks.
Tips
A common mistake is to assume that commercial banks' reserves might increase due to receiving cash from the sale, but actually, reserves decrease because the cash comes from customer deposits.
Sources
- Money Supply - Econlib - econlib.org
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