-Assume an original balance sheet: Refer to Table 14.1.If the Fed buys $10 billion in bonds from the public,all of the following are true except

Question

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The purchase of bonds by the Fed will increase the reserves of banks, allowing them to make more loans and increasing the money supply. This will lead to an initial increase in M1 by $10 billion (choice B) and a decrease in the amount of bonds held by the public (choice A). However, there is no reason to expect that the discount rate will rise as a result of this transaction, making choice C false.

-Assume an Original Balance Sheet: Refer to Table 14