Question

If the federal reserve buys $100,000 in treasury bonds from a bank at 3% interest, why is the immediate effect on the money supply?

A) it is increased by $100,000
B) it’s decreased by $3000
C) increased by $3000
d) decreased by $100,000

Answer 1

Hey dude, how are you? Imma see if I can help you, I think, if they give 3% of 100,000 dollars interest, that means that interest is the money the bank receives. So, the Federal Reserves money will be decreased by 3,000. Hope this helps.