The Fed can provide additional reserves to the banking system by either ________ government bonds or ________ discount loans.

Question

BlackTom AI · Accepted Answer

Purchasing government bonds increases reserves, and extending discount loans increases reserves—so the correct answer is c. purchasing; extending.

1) Relevant concepts
- Open-market operations: when the Fed purchases government bonds from banks or the public, it pays with reserves, thereby increasing the banking system’s reserves; selling bonds does the opposite, draining reserves.
- Discount window lending (discount loans): when the Fed extends (makes) discount loans to banks, it credits their reserve accounts, increasing reserves; calling in or repaying loans reduces reserves.

2) Step-by-step reasoning
- If the Fed wants to provide additional reserves, it must take actions that put central bank liabilities (reserves) into banks’ accounts.
- Open-market purchase: Fed buys a government bond from a bank → Fed credits the bank’s reserve account with central bank money and takes the bond onto its balance sheet → bank’s reserves rise.
- Extending discount loans: Fed lends to a bank via the discount window → Fed credits the bank’s reserve account for the loan amount → bank’s reserves rise immediately.

3) Intermediate “steps” (accounting view)
- Before: Bank reserves = R.
- Fed purchases bond worth B from bank: Reserves become R + B (bank receives B in reserves).
- Fed extends discount loan L to bank: Reserves become R + L (loan amount added to reserves).
(These are conceptual bookkeeping changes showing reserves increase.)

4) Why the correct answer is correct
- Both purchasing government bonds and extending discount loans put new reserves into the banking system directly; thus they increase the quantity of reserves the Fed supplies.

5) Why other options are incorrect
- a. selling; extending — selling bonds drains reserves, so the first action would reduce reserves (contradicts goal).
- b. selling; calling in — both selling bonds and calling in loans reduce reserves (opposite of providing more).
- d. purchasing; calling in — purchasing increases reserves (correct for first), but calling in loans reduces reserves (wrong for second).

6) Conclusion
Therefore, the Fed can provide additional reserves by purchasing government bonds or extending discount loans; this matches answer c. purchasing; extending.

The Fed can provide additional reserves to the banking system by either government bonds or discount loans.单项选择题

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The Fed can provide additional reserves to the banking system by either ________ government bonds or ________ discount loans.单项选择题