Question

Suppose the Federal Reserve purchases a $100,000 bond from John Doe, who deposits the proceeds in the Manufacturer's National Bank; what will be the impact of this transaction on the supply of money?

Answer 1

Step-by-step explanation:

I hope you get a second answer to this so I can see what the actual answer is. My guess is that the Federal Reserve has just put money into the system by purchasing Doe's bond. The fact that Doe puts it in a bank account does not change the fact that we are uncertain where the Feds got the money to buy the bond. They have the power to print money. They've just used some of that printed money to buy something that might be of value.