Suppose the Fed forecasts a reduction in cash leakages.It might offset the effect of this on the money supply by
A) buying government securities.
B) selling government securities.
C) lowering the required reserve ratio.
D) lowering the discount rate.

Question

Quizplus · Accepted Answer

Selling government securities is a tool used by the Federal Reserve to decrease the money supply. If the Fed forecasts a reduction in cash leakages, which would increase the money supply, selling government securities would help offset this effect by taking money out of circulation.

Suppose the Fed Forecasts a Reduction in Cash Leakages