When the Fed conducts open-market sales,

Question

O a. it auctions term loans, which increases the money supply.

O b.it sells Treasury securities, which increases the money supply.

O c. it sells Treasury securities, which decreases the money supply.

O d.it auctions term loans, which decreases the money supply.

Answer 1

The correct answer is:

O c. it sells Treasury securities, which decreases the money supply.

When the Federal Reserve (the Fed) conducts open-market sales, it sells Treasury securities to financial institutions. This action reduces the amount of reserve balances that banks hold, which effectively decreases the money supply in the economy.