Question

The Federal Reserve purchases and sells government securities, adjusts the reserve

requirements, and adjusts the discount rate to produce certain economic outcomes.
What is one outcome the Federal Reserve might want to produce when purchasing
government securities? (CS 24).

a) Reducing the money supply

b) Fostering economic expansion

c) Fostering economic contraction
​

Answer 1

b) Fostering economic expansion

When the Federal Reserve purchases government securities, one outcome it might want to produce is fostering economic expansion. By purchasing government securities, the Federal Reserve injects money into the economy. This increases the money supply and can lead to lower interest rates, making it easier for businesses and individuals to borrow money. This, in turn, stimulates investment and spending, promoting economic growth and expansion.