Which of the following policy actions by the Fed would cause the money supply to decrease?
A) An open market purchase of government securities.
B) A decrease in required reserve ratios.
C) A decrease in the discount rate.
D) An open-market sale of government securities.

Question

Quizplus · Accepted Answer

An open-market sale of government securities would cause the money supply to decrease because it removes funds from the banking system. When the Fed sells securities to banks and the public, it is taking cash out of circulation and decreasing the amount of money available in the economy. This reduces the ability of banks to lend and decreases the money supply.

Which of the Following Policy Actions by the Fed Would