If the Fed wants to increase the quantity of money, it can
A) raise the exchange rate.
B) purchase U.S. government securities.
C) increase the government budget deficit.
D) lower income tax rates.

Question

Quizplus · Accepted Answer

The Fed can increase the quantity of money by purchasing U.S. government securities. This increases the reserves of banks, which in turn increases the amount of money they can lend out. This process is known as open market operations. The other choices may have an impact on the economy, but they do not directly affect the quantity of money in circulation.

If the Fed Wants to Increase the Quantity of Money