AP Macroeconomics Question 239: Answer and Explanation

Test Information

Use your browser's back button to return to your test results.

Question: 239

6. Which of the following would lead to a decrease in the money supply?

  • A. The FED lowers the discount rate.
  • B. The FED sells government securities in the secondary market.
  • C. The federal government spends less money.
  • D. The FED lowers reserve requirements.
  • E. Taxes are reduced.

Correct Answer: B

Explanation:

(B) When the Fed sell securities in the secondary market they get paid with checks drawn on bank accounts. Bank reserves fall and the money supply falls by a multiple of the decline in bank reserves.