When the Fed makes an open-market sale, it:
A) increases the money multiplier (m).
B) increases the currency-deposit ratio (cr).
C) increases the monetary base (B).
D) decreases the monetary base (B).

Question

Quizplus · Accepted Answer

When the Federal Reserve makes an open-market sale, it sells government securities to banks, which decreases the reserves held by banks. This, in turn, decreases the money supply and the monetary base, making choice D the correct answer.

When the Fed Makes an Open-Market Sale, It