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Suppose that the Federal Reserve Bank sells $100 million worth of securities to a commercial bank....

Suppose that the Federal Reserve Bank sells $100 million worth of securities to a commercial bank. Consequently, ______ will ______ by $100 million

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Answer #1

Suppose that the Federal Reserve Bank sells $100 million worth of securities to a commercial bank. Consequently Reserves will decrease by $100 million.

If Federal Reserve sells securities then Commercial bank will buy those securities and as result bank reserve will reduce by that amount. Because the money will go the Federal bank because they sell the securities. Due to $100 million purchase of securities the reserve will decrease by that amount. Bank have to buy securities and that will reduce banks reserve.

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