Question

Suppose the Federal Reserve engages in open-market operations. It sells $20 billion in U.S. securities. It also raises the reserve ratio. This causes excess reserves to _______, the money supply to ________, and the money multiplier to ________.

a. decrease; decrease; decrease
b. decrease; increase; increase
c. increase; increase; increase
d. increase; decrease; decrease

Answer 1

Answer: The correct answer is "a. decrease; decrease; decrease".

Explanation: Suppose the Federal Reserve engages in open-market operations. It sells $20 billion in U.S. securities. It also raises the reserve ratio. This causes excess reserves to decrease, the money supply to decrease, and the money multiplier to decrease.