If the Fed sells $10,000 in government securities, it will have the effect of
A) decreasing the money supply.
B) changing the money supply, but the direction is not clear.
C) having no effect on the money supply.
D) increasing the money supply.
E) unable to tell with the information provided.

Question

Quizplus · Accepted Answer

When the Federal Reserve sells government securities, it effectively removes money from the banking system, as the buyers of these securities pay the Fed, which decreases the total amount of money that banks have available to lend. This action reduces the money supply in the economy.

If the Fed Sells $10,000 in Government Securities, It Will