Question

If you hear in the news that the Federal Reserve Bank conducted open market purchases of government securities, then you should expect _____ to increase

a. the reserve to deposit ratio

b. the reserve requirement

c. the discount rate

d. the money supply

Answer 1

In open market operation, which is performed by the Federal reserve Bank, the goal is to increase or decrease the money supply

The policy adopted by the bank is contractionary and its expansionary monetary policy

If the goal is to increase the money supply then bank adopts for expansionary monetary policy and buys the Government bonds

This is also called open market purchase

Discount rate is the rate at which the Federal reserve Bank lends to other commercial banks but it is not related with the open market operations

Similarly with the the reserve requirement

Reserve requirement is the minimum amount of money that commercial banks has to maintain and it cannot be lended.

So the only correct answer here is option D