When the Fed buys U.S. government securities, the money supply
A. increases because there is an increase in transaction deposits at the bank of the bond dealer but there is no decrease in transaction deposits at any other bank.
B. remains unchanged because the increase in transaction deposits at the bond dealer's bank is offset by a reduction in transaction deposits at the Fed.
C. decreases because there is an increase in the reserves of the bond dealer's bank.
D. remains unchanged because the increase in transaction deposits at the bond dealer's bank is offset by a fall in transaction deposits at another bank.
Answer: A
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