The Fed's $2.2 trillion fire hose The Fed threw a lot of money at the financial crisis in 2008 to unfreeze credit markets and encourage economic activity. As part of its effort to keep the interest rate low, the Fed purchased government bonds worth $300 billion between March and September 2009. By October, the Fed held $770 billion in government securities, nearly double its pre-crisis total. Before the crisis, the Fed held mainly government securities, which it used to control the quantity of money in the economy. Now government securities make up just 35% of the Fed's balance sheet. Source: CNN Money, October 9, 2009 If the Fed purchased the government securities on the open market, explain why the purchase of $300 billion of government securities would influence the interest rate. Question content area bottom Part 1 If the Fed purchases the government securities on the open market, the quantity of money _______ because _______. A. decreases; the demand for money decreases B. increases; bank reserves increase C. decreases; banks make more bank loans D. increases; bank reserves decrease E. does not change; bank reserves change by an amount equal to the change in government securities