The money supply is certain to increase if the Treasury finances expenditures by borrowing from the
A) Federal Reserve.
B) banking system.
C) non-bank financial system.
D) general public.

Question

Quizplus · Accepted Answer

When the Treasury borrows from the Federal Reserve, it creates new money by increasing the reserves of banks which then enables them to create more loans, thus increasing the money supply. This process is known as monetary financing or direct monetization.

The Money Supply Is Certain to Increase If the Treasury