Question

The fed can increase the federal funds rate by

a. selling treasury​ bills, which decreases bank reserves.
b. selling treasury​ bills, which increases bank reserves.
c. buying treasury​ bills, which decreases bank reserves.
d. buying treasury​ bills, which increases bank reserves.

Answer 1

The answer is selling Treasury bills, which decreases bank reserves. The government securities that are used in open market processes are Treasury bills, notes or bonds. If the FOMC needs to grow the money supply in the economy it will acquire securities. On the other hand, if the FOMC wants to decrease the money supply, it will vend its securities.