Question

The buying and selling of government securities by the Fed A system in which banks keep only a percentage of their deposits on reserve as vault cash and deposits at the Fed The interest rate the Fed charges on loans of reserves to banks The maximum change in the money supply due to an initial change in the excess reserves banks hold The interest rate banks charge for overnight loans of reserves to other banks

Answer 1

Answer: The correct option is "The interest rate the Fed charges on loans of reserves to banks"

Explanation: The buying of government security by the Fed will directly affect the interest rate the Fed charges on loans of reserves to banks.

Government securities means bonds been sold by government. The Fed means the central bank. Therefore when the central bank buys government bonds, this will increase the reserves of the commercial banks, by reducing the interest loan on the banks. The decrease in interest rate will make banks to expand their loans in the central bank, because more investors will want to take loans from banks, in order to utilize the decrease in interest rates published by the commercial banks.

Answer 2

Open market operations

Fractional reserve banking

Discount rate

Money multiplier

Federal funds rate

Step-by-step explanation:

Open market operations is the buying and selling of government securities like treasury note by the Fed.

Fractional reserve banking is a system in which banks keep only a percentage of their deposits on reserve as vault cash and deposits at the Fed.

Discount rate is the interest rate the Fed charges on loans of reserves to banks.

Money multiplier is the maximum change in the money supply due to an initial change in the excess reserves banks hold

Federal funds rate is the interest rate banks charge for overnight loans of reserves to other banks.