When the Fed undertakes reverse repo transactions with ﬁnancial institutions, it is trying to
A) increase the money supply.
B) reduce the money supply.
C) increase the federal budget deﬁcit.
D) reduce the federal budget deﬁcit.

Question

Quizplus · Accepted Answer

When the Fed undertakes reverse repo transactions, it temporarily takes money out of circulation by borrowing cash from financial institutions and providing them with securities. This reduces the money supply and helps the Fed control inflation.

When the Fed Undertakes Reverse Repo Transactions with ﬁNancial Institutions