The supply of money increases when the public buys government securities from commercial banks.

Question

Quizplus · Accepted Answer

When the public buys government securities from commercial banks, the money paid for these securities is transferred from the public's bank accounts to the government's account, effectively reducing the deposits in the banking system and not increasing the overall money supply. The supply of money would increase if the central bank purchased government securities, as this would inject new money into the banking system.

The Supply of Money Increases When the Public Buys Government