If the Fed sells government securities to a member of the nonbank public,then the resulting effect on the quantity of money is
A)much larger than if the securities were sold to a bank.
B)much smaller than if the securities were sold to a bank.
C)the same as if the securities were sold to a bank.
D)that there is no change in the quantity of money.
E)None of the above answers is correct.

Question

Quizplus · Accepted Answer

The sale of government securities to a member of the nonbank public reduces the quantity of money in circulation by the same amount as if the securities were sold to a bank. This is because the nonbank public does not have access to the Fed's discount window, so they cannot borrow money from the Fed to replace the securities they have sold.

If the Fed Sells Government Securities to a Member of the Nonbank