A sale of U.S. government securities by the Fed causes a(n)

Question

Quizplus · Accepted Answer

When the Federal Reserve sells U.S. government securities, it effectively removes money from the banking system because the buyers of these securities pay the Fed, which reduces the reserves banks have available. This leads to a contraction in the money supply. Due to the money multiplier effect, the actual reduction in the money supply is more than the amount of the securities sold, as it also reduces the banks' ability to create loans, which further decreases the money supply.

A Sale of U