Question

When the Fed conducts open-market purchases, a. it lends money to member banks, which decreases the money supply. b. it borrows money from member banks, which increases the money supply. c. it buys Treasury securities, which decreases the money supply. d. it buys Treasury securities, which increases the money supply.

Answer 1

Answer:

The correct answer is (D)

Explanation:

Open market operations are generally conducted by fed to increase or decrease the money supply in the country. When fed conducts open market purchases, it means that the fed will but government bond or treasury bills. It is a monetary policy tools an the reason to purchase government bonds is to increase the money supply. Increase in MS can lead to increase in inflation but it also increase government resources to invest in infrastructure, health and education.