An open- market sale of government bonds by the Fed results in _______ in bank reserves and _______ in the supply of money.

Question

An open- market sale of government bonds by the Fed results in  _______ in bank reserves and _______ in the supply of money.

Quizplus · Accepted Answer

When the Fed sells government bonds in the open market, it collects money from the buyers and takes it out of circulation. This reduces the amount of reserves banks hold, leading to a decrease in bank reserves. As banks have less money to lend, the money supply in the economy decreases.

An Open- Market Sale of Government Bonds by the Fed