If the Fed wants to decrease the quantity of money, it can
A) decrease the government budget deficit.
B) sell U.S. government securities.
C) raise income tax rates.
D) purchase U.S. government securities.

Question

Quizplus · Accepted Answer

Selling U.S. government securities reduces the amount of money in circulation, as people and institutions who buy these securities pay for them with money they have on hand. Therefore, selling government securities decreases the quantity of money. Choices A, C, and D would actually increase the quantity of money, as decreasing the government budget deficit, raising income tax rates, and purchasing government securities all involve injecting more money into the economy.

If the Fed Wants to Decrease the Quantity of Money