Question

An open market ________ leads to a(n) ________ of reserves and deposits in the banking system and hence to a(n) ________ of the monetary base and the money supply. sale; expansion; expansion sale; expansion; contraction purchase; expansion; contraction purchase; expansion; expansion all of above could work.

Answer 1

An open market PURCHASE leads to an EXPANSION of reserves and deposits in the banking system and hence to an EXPANSION of the monetary base and the money supply.

Step-by-step explanation:

Open market operations are carried out by the Fed in order to expand or contract the money supply.

1. An open market purchase means that the Fed will purchase US securities, increasing the money supply and decreasing interest rates (expansionary monetary policy).
2. An open market sale means that the Fed will sell US securities, decreasing the money supply and increasing interest rates (contractionary monetary policy).

Answer 2

purchase; expansion; expansion

Step-by-step explanation:

An open market purchase leads to a(n) expansion of reserves and deposits in the banking system and hence to a(n) expansion of the monetary base and the money supply

Open market operations is how central bank purchases or sells government securities in order to expand or contract money in the banking system and influence interest rates.