Question

When the Fed buys bonds in open-market operations, it _______the money supply. If the Fed reduces the reserve requirement, the money supply ______. When the Fed increases the interest rate it pays on reserves, the money supply will _______. When the FOMC increases its target for the federal funds rate, the money supply will________ . If bankers decide to hold more excess reserves because they are fearful of bank runs, the money supply ______.

Answer 1

When the Fed buys bonds in open-market operations, it increases the money supply. If the Fed reduces the reserve requirement, the money supply increase as well.

When the Fed increases the interest rate it pays on reserves, the money supply will reduce. When the FOMC increases its target for the federal funds rate, the money supply will reduce.

If bankers decide to hold more excess reserves because they are fearful of bank runs, the money supply reduce. All the above scenarios are activities that can occur when the Federal Government is using Monetary Policy.

What is monetary policy?

Monetary policy is a collection of acts designed to govern a country's total money supply and promote economic growth.

What  are Bonds?

A bond is a fixed-income product that reflects an investor's debt to a borrower (typically corporate or governmental).

A bond may be regarded of as an I.O.U. between the lender and the borrower that includes the loan information and payments.

Learn more about bonds at;

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