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The main way the Fed controls the money supply is through open-market activities. The amount of money in circulation rises when government bonds are bought and falls when they are sold.
What is money supply?
The total amount of money—cash, coins, and balances in bank accounts—in circulation is known as the money supply. The money supply is typically understood as a collection of secure assets that individuals, businesses, and governments can use to make payments or hold as short-term investments.
What are open-market activities?
The Federal Reserve's purchases and sales of securities on the open market are referred to as "open market operations" (OMO). The Fed runs open market operations to control the amount of money held in reserve by American banks.
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