All else equal, if the Fed engages in a repo transaction, then it means the Fed is attempting to
A) decrease the money supply.
B) increase the money supply.
C) foreclose on a failed bank.
D) raise interest rates.

Question

Quizplus · Accepted Answer

Repo transactions involve the Federal Reserve buying securities (usually Treasury securities) from banks, with the agreement that the banks will repurchase the securities the next day. This injects new money into the banking system, increasing the money supply. Therefore, the correct answer is B, increase the money supply.

All Else Equal, If the Fed Engages in a Repo