If the Fed sells a U.S.Treasury bill to a member of the public, the banking system has
A)less reserves and the money supply tends to fall.
B)more reserves and the money supply tends to fall.
C)less reserves and the money supply tends to grow.
D)more reserves and the money supply tends to grow.

Question

Quizplus · Accepted Answer

When the Fed sells a U.S. Treasury bill to a member of the public, the member's bank account is debited and the Federal Reserve's account is credited. This reduces the reserves in the banking system, which in turn decreases the ability of banks to expand their lending activities. As a result, the money supply tends to fall.

If the Fed Sells a U