When the federal reserve does an open market operation to increase the U. S. money supply, it A. prints money, which is put into circulation through a tax cut on wages. B. sells bonds to individuals and financial institutions. C. buys bonds from individuals and financial institutions. D. reduces regulation on financial lending institutions to increase the multiplier effect.

Question

Business

Roger Burke

11 March, 00:42

When the federal reserve does an open market operation to increase the U. S. money supply, it A. prints money, which is put into circulation through a tax cut on wages. B. sells bonds to individuals and financial institutions. C. buys bonds from individuals and financial institutions. D. reduces regulation on financial lending institutions to increase the multiplier effect.

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Answers (1)

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Jair Bray · Answer 1

Answer: buys bonds from individuals and financial institutions.

Explanation:

The central banks use different methods to decrease or increase the amount of money available in the banking system. The Federal Reserve Board, is the governing body which manages the Federal Reserve System and oversees all domestic monetary policy in the United States.

The Federal Reserve System can affect the money supply by using the open market operations where the Federal Reserve System buys and sells government securities. If the aim is to increase the money supply, the Federal Reserve System buys government bonds as this provides the securities dealers selling the bonds with cash, hence, increasing the overall money supply in the economy.