When the fed buys government bonds, the reserves of the banking system a. decrease, so the money supply increases. b. decrease, so the money supply decreases. c. increase, so the money supply increases. d. increase, so the money supply decreases?

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Chips

26 April, 05:37

When the fed buys government bonds, the reserves of the banking system a. decrease, so the money supply increases. b. decrease, so the money supply decreases. c. increase, so the money supply increases. d. increase, so the money supply decreases?

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Koen Rivers · Answer 1

When the fed buys government bonds, the reserves of the banking system : C. increase so the money supply increases

when the feds buys government bonds, the money will be transferred to citizens who sell the bond. This citizens will put some of the money in the banks which will increase the reserve in banking system and will spend some of it to buy products which will increase the money supply