When the Fed conducts open-market purchases,
A)banks buy Treasury securities from Fed,which increases the money supply.
B)banks buy Treasury securities from the Fed,which decreases the money supply.
C)it buys Treasury securities,which increases the money supply.
D)it buys Treasury securities,which decreases the money supply.

Question

Quizplus · Accepted Answer

When the Fed conducts open-market purchases, it buys Treasury securities from the public, which increases the supply of money in circulation. This is because the Fed is essentially creating money to buy the securities, which increases the reserves of banks and therefore their ability to lend and increase the money supply.

When the Fed Conducts Open-Market Purchases