When the Fed sells securities, the total funds of commercial banks ____ by the market value of the securities sold by the Fed. This activity initiated by the FOMC's policy directive is referred to as a ____ of money supply growth.
A)increase; loosening
B)decrease; loosening
C)increase; tightening
D)decrease; tightening
E)None of these are correct.

Question

Quizplus · Accepted Answer

When the Federal Reserve (Fed) sells securities, it effectively removes money from the banking system, leading to a decrease in the total funds available to commercial banks. This action is a form of monetary policy tightening, as it reduces the money supply, aiming to control inflation and stabilize the economy.

When the Fed Sells Securities, the Total Funds of Commercial