When the Fed sells securities, the total funds of commercial banks ____ by the market value of securities sold by the Fed. This activity initiated by the FOMC's policy directive is referred to as a ____ of money supply growth.
A)increase; loosening
B)decrease; loosening
C)increase; tightening
D)decrease; tightening
E)none of the above

Question

Quizplus · Accepted Answer

When the Fed sells securities, it decreases the reserves of commercial banks, which in turn decreases their ability to lend and create money. This results in a decrease in the total funds available in the economy, leading to a tightening of money supply growth. Therefore, option D is the correct choice.

When the Fed Sells Securities, the Total Funds of Commercial