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

Study concepts, example questions & explanations for AP Macroeconomics

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Example Questions

Example Question #1 : Money Supply

Which of the following are considered open-market activities?

Possible Answers:

Increasing Government Spending

Decreasing Taxes

Selling Government Bonds

None of these would be considered Open Market Activities

Raising Bank Reserve Requirements

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.)

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