Question

When the mosey market is drawn with the value of money bonds, on the vertical axis, if the Federal Reserve sells then the money supply curve:
a. shifts leftward, causing the value of money measured in terms of goods and services to rise.
b. shifts rightward, causing the value of money measured in terms of goods and services to fall.
c. shifts rightward, causing the value of money measured in terms of goods and services to rise.
d. shifts leftward, causing the value of money measured in terms of goods and services to fall.

Answer 1

Answer:

Option(a) is correct.

Explanation:

Buying and selling of government bonds is a part of open market operations which is used by the Federal Reserve for controlling the money supply in an economy.

Selling the government bonds is a contractionary monetary policy that is used  by the Federal reserve to reduce the money supply in the economy. This

This will reduce the inflation rate in an economy and shift the money supply curve leftwards. Hence, the value of money increases.