An open-market purchase of T-bonds by the Fed causes the money supply to
A)fall and bond prices to fall.
B)rise and bond prices to fall.
C)rise and bond prices to rise.
D)fall and bond prices to rise.

Question

Quizplus · Accepted Answer

When the Fed conducts an open-market purchase of T-bonds, it buys bonds from the public, which increases the reserves of the banking system, thereby increasing the money supply. As demand for bonds increases, their prices also rise.

An Open-Market Purchase of T-Bonds by the Fed Causes the Money