Asked by Maria Clara Mejia on May 01, 2024
Verified
When the Fed conducts open-market sales,
A) it sells Treasury securities, which increases the money supply.
B) it auctions term loans, which increases the money supply.
C) it auctions term loans, which decreases the money supply.
D) it sells Treasury securities, which decreases the money supply.
Open-Market Sales
Transactions where central banks sell securities in the open market to control the supply of money.
Treasury Securities
Debt instruments issued by the government to finance its expenditures, including bills, notes, and bonds.
Money Supply
The sum total of economic assets in monetary form at a specific time.
- Describe the principle of monetary policy and its effects on the supply of money.
Verified Answer
ZK
Zybrea KnightMay 07, 2024
Final Answer :
D
Explanation :
When the Federal Reserve (Fed) conducts open-market sales, it sells Treasury securities to the public. This action removes money from the economy because buyers pay for these securities with their bank deposits, which reduces the reserves in the banking system. Consequently, this process decreases the money supply.
Learning Objectives
- Describe the principle of monetary policy and its effects on the supply of money.