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12. Which of the following is most likely to occurif the Federal Reserve engages in open market operations to reduce inflation? (A) A decrease in interest rates B) A decrease in reserves in the banking system C) A decrease in the govemment deficit D) An increase in the money supply increase in exports pon
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Answer #1

When the Federal reserve engages in open market operation to reduce inflation.

Thus, the central bank will sell the government securities and decrease the supply of money. In other words the reserve in the banking system will decrease.

Due to decrease in supply the reserve will decline.

Answer is B. A decrease in reserves in the banking system.

Please let me know if you need any help. Thank you

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