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Federal Reserve and domestic money supply

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Please help answer the following question. Provide at least 400 words in the solution.

If the Federal Reserve purchased gold or foreign currency, how would this purchase affect the domestic money supply?

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The solution discusses the effect of purchase of gold or foreign currency by the Federal Reserve on the domestic money supply. The explanation is given in 426 words.

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If the Federal Reserve purchased gold or foreign currency, how would this purchase affect the domestic money supply?

When the Federal Reserve buys or sells anything it affects the monetary base and the money supply. This can be explained with the help of the balance sheet of the Federal Reserve.

The assets side of a balance sheet lists two types of assets:
Foreign assets: Mainly foreign currency bonds owned by the Federal Reserve (its official international reserves)
Domestic assets: Federal Reserve holdings of claims to future payments by its own citizens and domestic institutions

The liabilities side of a balance sheet lists as ...

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