To increase the money supply,the Federal Reserve could do which of the following?

Question

Quizplus · Accepted Answer

When the Federal Reserve conducts an open market purchase of U.S. Treasury securities, it injects money into the economy by increasing the reserves of banks, which can then be used for lending, thus increasing the money supply. This is the most common method used by the Federal Reserve to increase the money supply. Options A, B, and D would decrease the money supply, as they would result in banks having less money to lend. Option C would have a neutral effect on the money supply, as the purchase of Treasury securities would be balanced by money paid by the Federal Reserve, resulting in no net increase or decrease in the money supply.

To Increase the Money Supply,the Federal Reserve Could Do Which