The primary way in which the Fed controls the supply of money is by:
A) establishing the amount of currency the U.S. Treasury is allowed to print.
B) changing the reserve requirement as per prevailing economic conditions.
C) buying and selling government securities in open market operations.
D) allowing banks to borrow more money from the U.S. Treasury.

Question

Quizplus · Accepted Answer

The primary way in which the Fed controls the supply of money is by buying and selling government securities in open market operations. When the Fed buys government securities, it injects money into the economy, increasing the money supply. When it sells government securities, it removes money from the economy, decreasing the money supply. This tool is known as open market operations and is the most commonly used tool by the Fed to control the supply of money in the economy.

The Primary Way in Which the Fed Controls the Supply