In the 1970s in response to recessions caused by an increase in the price of oil, the central banks in many countries increased the money supply. How might the central banks have done this?
A)by selling bonds on the open market, which would have raised the value of money
B)by purchasing bonds on the open market, which would have raised the value of money
C)by selling bonds on the open market, which would have raised the value of money.
D)by purchasing bonds on the open market, which would have lowered the value of money.

Question

Quizplus · Accepted Answer

To increase the money supply, central banks typically purchase bonds on the open market. This increases the amount of money in circulation, which can help to stimulate economic activity. Selling bonds on the open market would have the opposite effect, reducing the money supply and potentially exacerbating a recession caused by higher oil prices. Therefore, the best choice is D, as it correctly identifies the method that central banks would likely use to increase the money supply in response to a recession.

In the 1970s in Response to Recessions Caused by an Increase