If the Fed wishes to increase the money supply, what action could it take?
A) It could sell a bond to a bank, receiving money in return which could then be taken out of circulation.
B) It could buy a bond from a bank, giving the bank cash in return which can then be lent out.
C) It could sell a bond to a bank, receiving money in return which could then be lent out to someone else.
D) It could buy a bond from a bank, giving the bank cash in return which is then required to be held as excess reserves.

Question

Quizplus · Accepted Answer

If the Fed wishes to increase the money supply, it can buy bonds from banks, which gives them cash in return. This cash can then be lent out, increasing the money supply in the economy.

If the Fed Wishes to Increase the Money Supply, What