When the Federal Reserve conducts open-market operations to increase the money supply,it
A)redeems Federal Reserve notes.
B)buys government bonds from the public.
C)raises the discount rate.
D)decreases its lending to member banks.

Question

Quizplus · Accepted Answer

When the Federal Reserve buys government bonds from the public, it is injecting money into the economy, thereby increasing the money supply. This is a common method used by the Fed to expand the money supply when it wants to stimulate economic growth or combat recession. Redeming Federal Reserve notes would decrease the money supply, raising the discount rate would make it more expensive to borrow money and decreasing lending to member banks would also decrease the money supply.

When the Federal Reserve Conducts Open-Market Operations to Increase the Money