Finance, Forex and Investments

How does the buying and selling of government security by commercial banks influence the money supply?

Public Comments

1. When commercial banks purchase treasury securities and other government bonds, the government will usually just print more money when the bond is redeemed at maturity. So, the answer is that the money supply will usually increase as a result. (Note: the government can raise taxes to obtain the revenue necessary to redeem the bond, but since it doesn't require an act of congress to print money, they usually do that)