Chapter 6R, Problem 6MCQ

To determine

To find:

Impact of Federal Reserve buying Treasury bills.

Explanation of Solution

In simple words, when federal reserve buy Treasury bills it leads to a complete transaction under which the Federal reserve gets securities and the banks from which they buy these securities gets money. This leads to increase in funds of general banks which they further borrow to their customers, that is general public. Hence the buying of treasury bills by the federal reserve leads to increase in money supply.

Hence the correct answer is A.