When the Fed sells government bonds,the reserves of the banking system
A)increase,so the money supply increases.
B)increase,so the money supply decreases.
C)decrease,so the money supply increases.
D)decrease,so the money supply decreases.

Question

Quizplus · Accepted Answer

When the Fed sells government bonds, it takes reserves out of the banking system. This decreases the amount of money that banks can lend out, leading to a decrease in the money supply. Therefore, the correct choice is D.

When the Fed Sells Government Bonds,the Reserves of the Banking