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A commercial bank sells a treasury bond to the federal reserve for $100,000. (assume that all proceeds from this bond sale are lent out) the money supply: decreases by $100,000.is unaffected by the transaction.increases by $100,000.

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Answer : Increases by $100,000.

The Federal Open Market Committee (FOMC) determines the money supply in an economy through open market operations.

The FMOC uses instruments like Treasury Bills, Treasury Bonds and notes for open market operations. If FOMC wants to increase money supply, it will purchase securities from banks. This increases the amount of funds with the bank. The bank can use these funds for lending.

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