When the Treasury Department borrows from the public to finance the government's purchases of goods and services and the Fed buys the debt back from the public in the form of Treasury bills, it is known as:
A) moral suasion.
B) money illusion.
C) structuring the deficit.
D) monetizing the debt.

Question

Quizplus · Accepted Answer

When the Fed buys the debt back from the public, it increases the money supply and effectively creates new money, which is known as monetizing the debt. This has implications for inflation and the value of the currency.

When the Treasury Department Borrows from the Public to Finance