Which of the following best explains why the money supply is increased when

the Fed buys T-bonds on the open market?

A. The purchase of bonds leads to a reduction in the discount rate, which

provides banks with an incentive to loan more money

B. The purchase of bonds reduces the available supply of bonds, which

drives up bond prices

C. The purchase of bonds increases the demand both for bonds purchases

and for money in general

D. The purchase of bonds increases the amount of deposits in people's

bank accounts, which enables banks to loan more money

Question

Business

Belen Davila

17 November, 07:23

Which of the following best explains why the money supply is increased when

the Fed buys T-bonds on the open market?

A. The purchase of bonds leads to a reduction in the discount rate, which

provides banks with an incentive to loan more money

B. The purchase of bonds reduces the available supply of bonds, which

drives up bond prices

C. The purchase of bonds increases the demand both for bonds purchases

and for money in general

D. The purchase of bonds increases the amount of deposits in people's

bank accounts, which enables banks to loan more money

+3

Answers (1)

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Dork · Answer 1

the correct answer is D. The purchase of bonds increases the amount of deposits in people's bank accounts, which enables banks to loan more money

This is a monetary policy strategy used by central banks to reduce interest rates, to maintain a healthy level of inflation and to boost economic and business activities. when banks have more money, they can loan them out to businesses and people!