QuestionMay 22, 2025

When the central bank decides it will buy bonds using open market operations the money supply increases. interest rates increase. the money supply decreases. bank reserves would fall.

When the central bank decides it will buy bonds using open market operations the money supply increases. interest rates increase. the money supply decreases. bank reserves would fall.
When the central bank decides it will buy bonds using open market operations the money supply increases. interest rates increase. the money supply decreases. bank reserves would fall.

Solution
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Answer

The money supply increases. Explanation 1. Identify the Effect of Bond Purchases When the central bank buys bonds, it injects money into the economy. 2. Determine the Impact on Money Supply The injection of money increases the money supply. 3. Analyze the Impact on Interest Rates An increased money supply typically leads to lower interest rates. 4. Assess the Impact on Bank Reserves Buying bonds increases bank reserves as banks receive money from the central bank.

Explanation

1. Identify the Effect of Bond Purchases<br /> When the central bank buys bonds, it injects money into the economy.<br /><br />2. Determine the Impact on Money Supply<br /> The injection of money increases the money supply.<br /><br />3. Analyze the Impact on Interest Rates<br /> An increased money supply typically leads to lower interest rates.<br /><br />4. Assess the Impact on Bank Reserves<br /> Buying bonds increases bank reserves as banks receive money from the central bank.
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