Treasury borrowing from the Federal Reserve is equivalent to creating money; retiring government debt held by the Federal Reserve is equivalent to destroying money.

Question

Quizplus · Accepted Answer

When the Treasury borrows from the Federal Reserve, it increases the money supply because the Federal Reserve essentially creates money to purchase Treasury securities. Conversely, when government debt held by the Federal Reserve is retired, it reduces the money supply, as this process effectively removes money from circulation, akin to destroying money.

Treasury Borrowing from the Federal Reserve Is Equivalent to Creating