In which of the following situations is expansionary monetary policy most effective?
A)The Fed raises the reserve requirement.
B)The Fed raises the discount rate.
C)The Fed sells more securities.
D)Banks are willing to lend excess reserves.

Question

Quizplus · Accepted Answer

Expansionary monetary policy is most effective when banks are willing to lend excess reserves, as this will increase the money supply through the multiplier effect. Raising the reserve requirement or raising the discount rate will have a contractionary effect on the money supply, as they require banks to hold more reserves and decrease the amount of borrowing from the Fed. Selling more securities can also have a contractionary effect on the money supply, as it decreases the amount of reserves banks hold. Therefore, D is the best choice for expansionary monetary policy.

In Which of the Following Situations Is Expansionary Monetary Policy