Question

If the federal reserve sells $70,000 in treasury bonds to a bank at a 9% interest rate what is the immediate effect on the money supply? A it is decreased by $70,000 B is it increased by $70,000 C) it is increased by $76,300 D) it is decreased by $76,300

Answer 1

Answer : A it is decreased by $70,000

Federal reserve sells $70,000 in treasury bonds to a bank.

Removing cash decreases the money supply . Money supply decreases when exchanging for bonds. That is the immediate effect on money supply.

Federal reserve sells $70,000 . so money supply is decreased by $70,000