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Identify each action by the Fed as expanding the money supply, shrinking it, or neither. expands the money supply shrinks the money supply neither expands nor shrinks Drag each item above to its matching item below. Note that every item may not have a match, while some items may have more than one match. The Fed lends money to struggling banks. Press Space to open The Fed regulates banks to ensure stability. Press Space to open The Fed buys mortgage-backed securities. Press Space to open The Fed sells Treasury bonds to investors.

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Based on macroeconomic analysis, it is believed that by matching the items in the question with their effect, we have the Fed lends money to struggling banks. -- expanding the money supply;

  • This is because when the Fed lends money to struggling banks, there is more money available for people to borrow or assess in the economy.

The Fed regulates banks to ensure stability. -- expanding the money supply, or shrinking it;

  • When the Fed regulates banks to ensure stability, they may either be pumping money into the economy to solve deflation or take money from the economy to solve inflation.

The Fed buys mortgage-backed securities. -- expanding the money supply;

  • When the Fed buys mortgage-backed securities, owners of these mortgages get more money, thereby pumping money into the economy.

The Fed sells Treasury bonds to investors -- shrinking it;

  • When the Fed sells Treasury bonds to investors, they take money from investors, thereby taking away money from the economy.

Hence, in this case, it is concluded that there are various means by which the federal government can expand or shrink the money supply in the economy.

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