Question

When the Fed extends loans to depository institutions A. it increases the level of reserves. B. it reduces the total value of the assets on its balance sheet. C. it decreases the level of reserves. D. it reduces the total value of the liabilities on its balance sheet.

Answer 1

A. it increases the level of reserves

Step-by-step explanation:

When depository institutions receive loans from Fed it is basically the extension of increase in value of reserves.

This reflects the increase in balance of reserves because this means that the depository banks holds more amount of assets of federal reserve. This will increase the reserves of depository banks with Fed, as even though they are using such amount but these are assets of Fed only to be paid back.