The finance of government spending through a Treasury sale of bonds which are then purchased by the Fed

Question

Quizplus · Accepted Answer

When the Fed purchases Treasury bonds, it pays for them by adding the amount to the banks' reserves, which increases both the reserves and the monetary base. The monetary base consists of the currency in circulation plus reserves held at the Fed, so when reserves increase, so does the monetary base.

The Finance of Government Spending Through a Treasury Sale of Bonds