When conducting an open-market purchase, the Fed
A)buys government bonds, and in so doing increases the money supply.
B)sells government bonds, and in so doing decreases the money supply.
C)buys government bonds, and in so doing decreases the money supply.
D)sells government bonds, and in so doing increases the money supply.

Question

Quizplus · Accepted Answer

When the Federal Reserve conducts an open-market purchase, it buys government bonds from the public. This action increases the reserves of the banking system, which in turn increases the money supply because banks can lend more.

When Conducting an Open-Market Purchase, the Fed