Question

Assume a country’s banking system has limited reserves. If the central bank sells a significant amount of government securities in the open market, which of the following will occur?

(A) the total amount of loans made by commercial banks will decrease
(B) the total amount of loans made by commercial banks will increase
(C) the money supply will increase
(D) the money supply will decrease
(E) rates of interest and amount of loans made by commercial banks will remain unchanged

Answer 1

(A) the total amount of loans made by commercial banks will decrease

Step-by-step explanation:

If the Federal Reserve sells a significant amount of government securities in the open market, which of the following will occur? The total amount of loans made by commercial banks will decrease