Question

Which of the following statements is true?
a. When the Fed sells government bonds, the money supply decreases.
b. The FOMC meets once per year to discuss monetary policy.
c. The Federal Reserve was created in 1871 in response to the Civil War.
d. The primary tool of monetary policy is the reserve requirement.

Answer 1

The true statement among the options provided is:

**a. When the Fed sells government bonds, the money supply decreases.**

Here's a brief explanation for each statement:

a. **True** - When the Federal Reserve (Fed) sells government bonds, it reduces the reserves in the banking system, leading to a decrease in the money supply.

b. **False** - The Federal Open Market Committee (FOMC) meets several times a year, specifically eight times annually, to discuss and set monetary policy.

c. **False** - The Federal Reserve was created in 1913, not 1871, in response to a series of financial panics, partially due to the need for a more stable monetary and financial system.

d. **False** - While the reserve requirement is one of the tools of monetary policy, the primary tool used by the Fed is open market operations (the buying and selling of government securities).

Therefore, the correct answer is **a**.