If the government borrows money from the Federal Reserve
A) the quantity of publicly held bonds will rise.
B) the quantity of money in circulation will rise.
C) the quantity of money in circulation will fall.
D) inflation will decrease.

Question

Quizplus · Accepted Answer

When the government borrows money from the Federal Reserve, the quantity of money in circulation will increase. This is because the Federal Reserve creates new money to lend to the government, which then enters the economy through government spending. This increase in the money supply can lead to inflation if not managed properly.

If the Government Borrows Money from the Federal Reserve