Question

Suppose the Federal Reserve is presently holding $4.2 trillion in U.S. Treasury bonds. If the Fed decides to sell $1 billion of these bonds to the public, we can expect reserves in the banking system to _____________ and we can expect the money supply to _____________.

increase or decrease for options

Answer 1

• When Fed sells bonds to the publice at takes money out of the mon economy, thereby reducing money supply. This also reduces reserves from the system thereby lending reducing total deposits • Thus, in question as fed sells & 1 billion of bonds to public, money supply decreases, we can expect resevics banking sector to decrease and money supply to decrease seducing bank and In Scanned by TapScanner