Question

To make bond purchases, the Fed gets the money __________. Select the correct answer below: exclusively from proceeds it has received from selling bonds in the past

Answer 1

Answer: c. by creating it

Explanation:

Purchasing Bonds is a part of Monetary Policy by the Fed to increase the money supply in the economy. As such, when they purchase those bonds they do it with new money that they have created to be able to increase the supply in the market.

Apart from creating new money, they can also purchase the bonds by creating bank reserves for commercial banks in the country which the banks can then give out as loans to increase the money supply.