Federal Reserve purchases of government bonds ______________ total reserves and _________________...

Question:

Federal Reserve purchases of government bonds _ _ _ _ _ _ _ total reserves and _ _ _ _ _ _ _ the money supply.

A. decreases; decreases

B. decreases; increases

C. increases; decreases

D. increases; increases

Open Market Operation:

Open market operations are market transactions by the Central Bank, typically involving the purchase and sale of government issued securities, that aim to increase or decrease the total supply of money in the economy.

Answer and Explanation:

The answer is D.

When the Federal Reserve purchases government bonds in the market, the Fed either increases transfers of cash to the banks who sell...

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Measuring the Money Supply: Explanation and Examples

from Economics 102: Macroeconomics

Chapter 11 / Lesson 3
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