B. Monetary Policy: Use the Keynesian equation (C+1+G+Xn=Y) to illustrate and explain how monetary policy works Using ordinary language, not a definition you pulled off the internet, explain how the Fed. increases the money supply and stimulates the economy by lowering the reserve requirement. Using ordinary language, not a definition you pulled off the internet, explain how the Fed. increases the money supply and stimulates the economy by buying bonds in the open market. Explain why, when the Federal Reserve purchases new bonds from the U.S. Treasury, it causes inflation. But, if the general public bought the new bonds instead of the Fed. it would not cause inflation