The sale of $1 billion of securities to a bank or some other business by the Fed is an example of
A) a last resort loan.
B) a multiple contraction of the quantity of money.
C) an open market operation.
D) a change in the required reserve ratio.

Question

Quizplus · Accepted Answer

The sale of securities by the Federal Reserve to a bank or another business is an example of an open market operation. This is a tool used by the Fed to control the money supply by buying or selling government securities. Selling securities, in this case, would decrease the amount of money in the banking system, as it takes money out of circulation and into the Fed's accounts.

The Sale of $1 Billion of Securities to a Bank