If the Fed begins to buy treasury bills to counter a recession, we would expect to see an increase in the

a. demand for money.

b. a decrease in the demand for money.

c. an increase in the quantity of money demanded.

d. a decrease in the quantity demanded of money.

e. no change in the demand for money.

The answer is A.

When the Fed starts to purchase treasury bills to deal with a recession, it is anticipated that (a) the demand for money will increase. The government applies the federal tool to regulate the amount of money flow in an economy. Therefore, the government can either buy or sell government securities in the OMO, open market operations, to regulate the economy. These securities could include bills, notes, or bonds.

During an economic downturn, the Fed buys these securities, which increase the flow of money in the economy. The buying of these securities increases the amount of money in the lending systems and leads to reduced interest rates. The reduced interest rates make it attractive for individuals to borrow, stimulating economic activities through increased consumer spending since banks have more money to offer.