Suppose the Federal Reserve buys bonds from the banking system, the money supply curve

Question

BlackTom AI · Accepted Answer

To analyze the effect of the Fed buying bonds from the banking system, we need to connect open-market operations to the money supply.
Option 1: 'will become flatter.' This describes a change in the slope of a demand or supply curve, not the direction of the money supply itself. An open-market purchase does not make the money supply curve flatter; the standard description is a horizontal (to the right) shift because more money is available at every interest rate.
Option 2: 'shift to the left.' A leftward shift would imply a decrease in the money supply available to the banking system, which would occur if the Fed sold bonds or otherwise withdrew reserves. Since the operation described is the opposite, this option is incorrect.
Option 3: 'shift to the right.' When the Fed buys bonds from banks, it credits banks' reserves, increasing the monetary base and, through the money multiplier, the overall money supply. This manifests as a rightward shift of the money supply curve, meaning more money is available at any given interest rate.
Option 4: 'will become steeper.' Similar to option 1, changing the slope (steepness) is not the standard outcome discussed in the context of an open-market purchase. The typical result is a parallel shift to the right, not a change in sensitivity or curvature of the curve.
Therefore, the correct conceptual outcome is a rightward shift of the money supply curve, reflecting an increased money supply due to higher reserves in the banking system after the transaction.

Suppose the Federal Reserve buys bonds from the banking system, the money supply curve单项选择题

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