When the Fed buys U.S. government securities, the money supply a. decreases beca

ID: 1245022 • Letter: W

Question

When the Fed buys U.S. government securities, the money supply a. decreases because there is an increase in the required reserves of the bond dealer's bank. b. remains unchanged because the increase in transaction deposits at the bond dealer's bank is offset by a fall in transaction deposits at another bank. c. increases because there is an increase in transaction deposits at the bank of the bond dealer but there is no decrease in transaction deposits at any other bank. d. remains unchanged because the increase in transaction deposits at the bond dealer's bank is offset by a reduction in transaction deposits at the Fed.

Explanation / Answer

The correct answer is: c. increases because there is an increase in transaction deposits at the bank of the bond dealer but there is no decrease in transaction deposits at any other bank.

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When the Fed buys U.S. government securities, the money supply a. decreases beca

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