The purchase of government securities from the public by the Fed will cause
A) commercial bank reserves to decrease.
B) the money supply to increase.
C) demand deposits to decrease.
D) the interest rate to increase.

Question

Quizplus · Accepted Answer

When the Fed purchases government securities from the public, it injects money into the economy, increasing the money supply. This results in an increase in bank reserves, and potentially a decrease in interest rates. Therefore, the correct answer is B - the money supply will increase.

The Purchase of Government Securities from the Public by the Fed