Question

13. An open market purchase of securities by the Fed will A) increase assets of the nonbank public and increase assets of the banking system. B) decrease assets of the nonbank public and increase assets of the Fed. C) decrease assets of the banking system and increase assets of the Fed. D) have no effect on assets of the nonbank public but increase assets of the Fed. E) increase assets of the banking system and decrease assets of the Fed.

Answer 1

have no effect on assets of the nonbank public but increase assets of the Fed.

Step-by-step explanation:

Federal reserve has a primary responsibility of controlling the level of liquidity in the economy, and it does this by issuing securities to the public when it wants to reduce liquidity. It buys up securities when it wants to increase liquidity.

In this instance when the Fed buys up securities it will have no effect on assets of the nonbank public but increase assets of the Fed.

The Fed will have more securities in its custody, and because it is the banked public that purchases securities the nonbank public will not be affected.