<p>Because Fed buys those bonds with newly created reserves not already existing money.</p>
<p>So when Fed wants to buy \$1000 bond it creates \$1000 worth of new reserves.</p>

CC BY-SA 4.0
2022-05-12T15:23:35.430Z
2022-05-12T15:23:35.430Z
1muflon1
<p>A question asks, &quot;If the federal funds rate were above the rate the Fed had targeted, the fed could move the rate back towards its target by _&quot; and then the options are buying/selling bonds, and this would increase/decrease reserves. According to the answer sheet it says buying bonds, which would increase reserves. Why would that be?</p>

<macroeconomics><monetary-policy><reserve-requirement-ratio><fed-funds-rate>
Why do reserves increase when the Fed buys bonds? (Introduction to Macroeconomics)
Mnm
# Why do reserves increase when the Fed buys bonds? (Introduction to Macroeconomics)

(Asked by: username_0 on 2022-05-12)

A question asks, "If the federal funds rate were above the rate the Fed had targeted, the fed could move the rate back towards its target by \_" and then the options are buying/selling bonds, and this would increase/decrease reserves. According to the answer sheet it says buying bonds, which would increase reserves. Why would that be?

**Tags:** macroeconomics, monetary-policy, reserve-requirement-ratio, fed-funds-rate

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## 1 answers

### Answer by username_1 on 2022-05-12. Score: 1 | Accepted answer

Because Fed buys those bonds with newly created reserves not already existing money.

So when Fed wants to buy \$1000 bond it creates \$1000 worth of new reserves.


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