To increase the quantity of money in the economy, the Federal Reserve is likely to

Question

Quizplus · Accepted Answer

The Federal Reserve is likely to buy government securities in an open market operation in order to increase the quantity of money in the economy. This is because when the central bank buys government securities from banks and other financial institutions, it increases the supply of cash in the economy. This, in turn, increases the amount of money that banks have available to lend out to consumers and businesses, which can stimulate economic growth. Lowering tax rates or printing more money and giving it to banks are not effective ways for the Federal Reserve to increase the quantity of money in the economy. Selling government securities in an open market operation would actually decrease the supply of cash in the economy, so it is also not an appropriate choice.

To Increase the Quantity of Money in the Economy, the Federal