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

Question

Quizplus · Accepted Answer

When the Federal Reserve (Fed) purchases government securities, it pays for these securities by adding the amount to the reserves of the banks. This action increases the amount of money that banks have available to lend, effectively increasing the money supply.

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