Question

A commercial bank buys a $50,000 government security from a securities dealer. the bank pays the dealer by increasing the dealer's checkable deposit balance by $50,000. the money supply has:

Answer 1

Answer:

Increased by $50,000

Explanation:

When the Federal Reserve or a any private bank buys government securities from another private company or investor, they "create" money in the same way as a loan creates money.

Therefore, when the commercial bank bought government securities worth $50,000 from a private securities dealer, the money supply increased by $50,000.