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8 July, 05:46

When banks borrow and lend reserves in the federal funds market,

a. the total reserves of the banking system stay the same.

b. the reserves of the banking system become part of M1.

c. the total reserves of the banking system increase.

d. the total reserves of the banking system shrink.

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Answers (1)
  1. 8 July, 06:01
    0
    The correct answer is A

    Explanation:

    The reserves can not be a part of the M1, which is a stock of money but they are a part of monetary base. When in the market, the transaction among the banks in relation to the sale and the purchase of the reserve.

    The supply function is vertical which states the total quantity of reserves will remain be un exchanged after the market transaction unless they are increased by the Central Bank.

    Therefore, A option is correct.
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Home » Business » When banks borrow and lend reserves in the federal funds market, a. the total reserves of the banking system stay the same. b. the reserves of the banking system become part of M1. c. the total reserves of the banking system increase. d.
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