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If the Fed decides to sell securities what will happen to the money supply?

If the Fed decides to sell securities what will happen to the money supply?

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Answer #1

When the Fed decides to sell securities in that case the Fed is having contractionary policy. That is through sales they will be withdrawing money from the economy. In other words the money supply will decrease.

The Fed is selling securities in exchange of security they will be receiving money from the potential buyers. The money which was already in circulation will now be with the Fed thus the money supply will decrease.

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