Problem
In 2000, the federal debt was being paid down because the federal budget was in surplus. Recall that surplus means that tax collections (T) exceed government spending (G). The surplus (T - G) was used to buy back government bonds from the public, reducing the federal debt. As we discussed in this chapter, the main method by which the Fed increases the money supply is to buy government bonds by using open market operations. What is the impact on the money supply of using the fiscal surplus to buy back bonds? In terms of their impacts on the money supply, what is the difference between Fed open market purchases of bonds and Treasury purchases of bonds using tax revenues?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.