AP Macroeconomics : How to find the effect of government securities on money supply

Study concepts, example questions & explanations for AP Macroeconomics

varsity tutors app store varsity tutors android store

Example Questions

Example Question #1 : Money Supply

Which of the following are considered open-market activities?

Possible Answers:

Decreasing Taxes

None of these would be considered Open Market Activities

Raising Bank Reserve Requirements

Increasing Government Spending

Selling Government Bonds

Correct answer:

Selling Government Bonds

Explanation:

Selling Government Bonds would be considered open market activities. When the Federal Reserve wants to adjust interest rates, they conduct open market operations - which involves selling government bonds (which raises interest rates by decreasing the money supply) or buying government bonds (which lowers interest rates by increasing the money supply.)

Learning Tools by Varsity Tutors