Question

Reserves can be increased by A) Making new loans, or in other words, increase lending to...

Reserves can be increased by

A) Making new loans, or in other words, increase lending to customers

B) Selling assets

C) Lending money to central banks

D) Buying bonds in the open market, usually bonds that pension funds are selling

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Answer #1

Reserves are explained as a fraction of the total deposits made by customers to the bank in order to meet any sudden obligations. This fraction or Reserve is established by the Federal Reserve Bank. However, the Fed can either increase or decrease this Reserve by playing (buying or selling) in the open market. By buying back securities and treasury bills from banks, Fed can either increase or decrease the amount of money available for lending.

D) Buying bonds in the open market, usually bonds that pension funds are selling.

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