When an individual sells a $100 bond to the Fed,she may either deposit the check she receives or cash it for currency.In both cases

Question

Quizplus · Accepted Answer

When the individual sells the bond to the Fed, the Fed pays her with a check, which is essentially an increase in her deposits. When she deposits the check, her bank's reserves increase, thus increasing the overall reserves of the banking system. Additionally, since the Fed is creating new money to pay for the bond, this increases the supply of high-powered money in the economy. Therefore, option B is the correct answer.

When an Individual Sells a $100 Bond to the Fed,she