Question

When the Federal Reserve sells a government bond to a primary dealer, reserves in the banking system ________ and the monetary base ________, everything else held constant.A) increase; increasesB) increase; decreasesC) decrease; increasesD) decrease; decreases

Answer 1

Answer: Increase; increases

When the Federal Reserve sells a government bond to a primary dealer, reserves in the banking system increase and the monetary base increases, everything else held. | This happens because when the Government bonds, the banking system will increase everything else held with it.