Question

when the fed buys government bonds, group of answer choices the money supply decreases and the federal funds rate decreases. the money supply decreases and the federal funds rate increases. the money supply increases and the federal funds rate increases. the money supply increases and the federal funds rate decreases.

Answer 1

The Fed's open market bond purchases will increase the money supply. If it sells bonds on the open market, the amount of money in circulation will fall.

What is the process of Open Market Operations?

This is why. The Fed purchases a Treasury bond from one of its principal dealers when it makes a bond purchase. One of the 23 financial institutions authorized to do business with the Fed is included. These dealers regularly deal in government bonds and regard the Fed as a regular client. It is important to note that the government issued the bonds that are being sold on the secondary open market months or years ago, and they won't mature for another few months or years.

To learn more about Open Market Operations refer to:

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