The Fed buys bonds in the open market and pays for the bonds by transmitting funds to the bond dealer's deposit account in a bank, at which point it becomes part of the money supply. The Fed has just created money, because it has added to the reserve account of the bond dealer's bank, and the money supply increases by the amount of the purchase.

Please add more to my response above. Be more specific. Question: 4) Explain how the Fed increases the money supply when it buys bonds in the open market.