Question

which of the following actions would have the effect of increasing the supply of money and credit and lowering interest rates?

Answer 1

The Fed buys government securities would have the effect of increasing the supply of money and credit and lowering interest rates.

What happens when the Fed purchases government securities?

The value of the security that the Fed purchases increases its assets, while the increase in reserve balances increases its liabilities. The combined borrowing of the federal reserve and the US government is constant.

What would boost the amount of money in circulation?

carrying out monetary policy. For instance, if the Fed purchases or borrows Treasury bills from commercial banks, it will deposit the funds into the reserve accounts that banks are obligated to maintain with the Fed. Thus, the money supply is increased.

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