The quantity of money decreases if
A) the currency drain increases.
B) the desired reserve ratio decreases.
C) banks loan all excess reserves.
D) the Treasury Department issues fewer government securities.
E) the Fed buys U.S.government securities.

Question

Quizplus · Accepted Answer

An increase in currency drain means that people are holding more cash instead of depositing it in banks. This reduces the amount of money in circulation and therefore decreases the quantity of money.

Answer: E 
 When the Fed buys U.S. government securities, it injects money into the economy. This increases the reserves of banks, which leads to an increase in the lending capacity of banks. As a result, the quantity of money in circulation increases.

The Quantity of Money Decreases If