Open market sales shrink ________ thereby lowering ________.
A)the money multiplier;the money supply
B)the money multiplier;reserves and the monetary base
C)reserves and the monetary base;the money supply
D)the money base;the money multiplier

Question

Quizplus · Accepted Answer

Open market sales involve the Fed selling Treasury securities to banks and the public, which decreases the reserves and the monetary base in the banking system. This reduction in reserves lowers the potential money supply, since banks have less money to lend out and less ability to create new deposits through the money multiplier process. Therefore, choice C is the correct option as open market sales reduce reserves and the monetary base, which, in turn, can decrease the money supply.

Open Market Sales Shrink ________ Thereby Lowering ________

Open Market Sales Shrink Thereby Lowering