An increase in the money supply might indicate that the Fed had
A)purchased bonds to increase banks reserves.
B)purchased bonds to decrease banks reserves.
C)sold bonds to increase banks reserves.
D)sold bonds to decrease banks reserves.

Question

Quizplus · Accepted Answer

The Fed increases the money supply by purchasing government bonds from banks, which increases the banks' reserves. This is known as open market operations (OMO). An increase in bank reserves means that banks have more money to lend, which can lead to an increase in lending and spending in the economy, thus increasing the money supply.

An Increase in the Money Supply Might Indicate That the Fed