Question

The supply of money is directly increased when the Fed ______.

A. buys government bonds from the public
B. sells government bonds to a commercial bank
C. buys public stocks from government
D. buys government bonds from a commercial bank

Answer 1

The supply of money is directly increased when the Fed buys government bonds from the public.

Step-by-step explanation:

The supply of money is directly increased when the Fed buys government bonds from the public. When the central bank buys bonds, money flows from the central bank to individual banks in the economy, increasing the money supply in circulation. This is part of an expansionary monetary policy where the Fed injects money into the banking system, making more funds available to lend to businesses and consumers.