Open-Market Operations by the Federal ReserveIn panel (a), the Federal Reserve increases the monetary base by purchasing U.S. Treasury bills from private commercial banks in an open-market operation. Here, a $100 million purchase of U.S. Treasury bills by the Federal Reserve is paid for by a $100 million increase in the monetary base. This will ultimately lead to an increase in the money supply via the money multiplier as banks lend out some of these new reserves. In panel (b), the Federal Reserve reduces the monetary base by selling U.S. Treasury bills to private commercial banks in an open-market operation. Here, a $100 million sale of U.S. Treasury bills leads to a $100 million reduction in commercial bank reserves, resulting in a $100 million decrease in the monetary base. This will ultimately lead to a fall in the money supply via the money multiplier as banks reduce their loans in response to a fall in their reserves.