If the Federal Reserve wants to increase the supply of money, it creates dollars and uses them to purchase government bonds from the public in the nation's bond markets.

Question

Quizplus · Accepted Answer

This is known as open market operations, which is one of the tools used by the Federal Reserve to change the money supply in the economy. By purchasing government bonds, the Federal Reserve injects new money into the system and increases the supply of money.

If the Federal Reserve Wants to Increase the Supply of Money