Question

In an open market​ purchase, the Fed​ ________ government​ securities, which​ ________ bank reserves and​ ________ the federal funds rate.

Answer 1

Buys, Increase, Increase

Step-by-step explanation:

The sale and purchase of government securities in the open market by federal reserve is called open market operation, it is a flexible and frequently used way means of implementing the monetary policy. FOMC(Federal Open Market Committee) handles all the open market operations and it consists of five Federal reserve district bank presidents and seven Federal reserve governors. OMO ensures that the money flows freely into the hands of the businesses and consumers. To increase the money supply the Fed purchases the bond form the banks to inject money in the banking system. Banks uses these funds for providing loans, and the increased loan activities reduces the interest rate.

Answer 2

The correct answer is: buys; increases; decreases.

Step-by-step explanation:

Open market operations refer to the sale and purchase of government securities in the open market. It is a monetary tool used by the central bank to control the money supply.

In an open market purchase, the Fed buys government securities in the open market and pays for these securities. This causes the reserves with commercial banks to increase.

As the banks now have more money to lend or the lending capacity of the bank increases, this causes the interest rates to decline. The federal funds rate is also an interest rate, so it will decline as well.