When the Fed sells government securities, it:
1- Increases the amount of excess reserves that banks hold, discouraging them from making loans to the general public.
2- Increases the amount of excess reserves that banks hold, encouraging them to make loans to the general public.
3- Decreases the amount of excess reserves that banks hold, discouraging them from making loans to the general public.
4- Raises the cost of borrowing from the Fed, discouraging banks from making loans to the general public.
5- Lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public.