If the Federal Reserve wants to increase the availability of money and credit, it can:
A) lower the discount rate.
B) raise the reserve requirements.
C) sell U.S. government bonds to the public.
D) encourage banks to increase their prime lending rate.

Question

Quizplus · Accepted Answer

Lowering the discount rate would make it cheaper for banks to borrow from the Federal Reserve, which would encourage them to lend more money to consumers and businesses. This would increase the availability of credit and stimulate economic activity. Raising reserve requirements would have the opposite effect, as banks would be required to hold onto more of their deposits rather than lend them out. Selling U.S. government bonds to the public would also have the effect of reducing the money supply, as investors would be taking money out of circulation. Encouraging banks to increase their prime lending rate would actually discourage borrowing and result in less money and credit being available.

If the Federal Reserve Wants to Increase the Availability of Money