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17 February, 03:26

A commercial bank buys a $50,000 government security from a securities dealer. the bank pays the dealer by increasing the dealer's checkable deposit balance by $50,000. the money supply has:

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  1. 17 February, 05:43
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    Increased by $50,000

    Explanation:

    When the Federal Reserve or a any private bank buys government securities from another private company or investor, they "create" money in the same way as a loan creates money.

    Therefore, when the commercial bank bought government securities worth $50,000 from a private securities dealer, the money supply increased by $50,000.
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