Which of the following would reduce the money supply?
A) Commercial banks use excess reserves to buy government bonds from the public.
B) Commercial banks loan out excess reserves.
C) Commercial banks sell government bonds to the public.
D) A check clears from Bank A to Bank B.

Question

Quizplus · Accepted Answer

When commercial banks sell government bonds to the public, they are taking money out of circulation and reducing the money supply. Choice A and B would increase the money supply by injecting more money into circulation. Choice D does not have any direct impact on the money supply.

Which of the Following Would Reduce the Money Supply