When the Fed conducts open-market sales,
A)it sells Treasury securities, which increases the money supply.
B)it auctions term loans, which increases the money supply.
C)it auctions term loans, which decreases the money supply.
D)it sells Treasury securities, which decreases the money supply.

Question

Quizplus · Accepted Answer

When the Federal Reserve (Fed) conducts open-market sales, it sells Treasury securities to the public. This action removes money from the economy because buyers pay for these securities with their bank deposits, which reduces the reserves in the banking system. Consequently, this process decreases the money supply.

When the Fed Conducts Open-Market Sales