Bonds and sells them to the public to finance the deficit

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Suppose the treasury of the United States issues bonds and sells them to the public to finance the deficit. What happens to the money supply and? why? A) The money supply remains unchanged because every dollar taken in by the Treasury goes right back into circulation through government spending. B) The money supply increase because government borrowing increases reserves in the banking system. C) The money supply remains unchanged because there is no effect on the spending multiplier. D) The money supply decreases because government borrowing reduces free reserves in the banking system.

Reference no: EM131239306

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