To increase the quantity of money in the economy,the Federal Reserve can
A)print more money and give it to the banks.
B)increase the required reserve ratio.
C)buy government bonds in an open market operation.
D)sell government bonds in an open market operation.
E)cut taxes.

Question

Quizplus · Accepted Answer

When the Federal Reserve buys government bonds in an open market operation, it pays for them by creating new money and depositing it in the accounts of the sellers. This increases the reserves of the banks, allowing them to make more loans and ultimately increasing the quantity of money in the economy. Options A and E are not effective ways to increase the quantity of money, as they do not directly affect the banking system. Option B would actually decrease the quantity of money by increasing the amount of reserves that banks are required to hold. Option D would also decrease the quantity of money, as the money used to buy the bonds would be removed from circulation.

To Increase the Quantity of Money in the Economy,the Federal