Under which of the following circumstances would the Federal Reserve System want to decrease the money supply by increasing the reserve requirement?
A) The economy is experiencing severe inflation, and market activity is very low. Yet the financial institutions have a great deal of M-1 resources at their disposal that they are not investing.
B) The economy is experiencing severe inflation, yet market activity has been extremely high and erratic.
C) The economy is experiencing severe deflation, and market activity is very low. Yet the financial institutions have a great deal of M-1 resources at their disposal that they are not investing.
D) The economy is experiencing severe deflation, yet market activity has been extremely high and erratic.
E) The economy is experiencing severe deflation, market activity is very low, and most financial institutions are low on M-1 resources.

Question

Quizplus · Accepted Answer

B)The Fed helps counteract inflation by decreasing the money supply. Here the market needs to be stabilized. By increasing the reserve requirement, the Fed will lower the amount of investments made by the financial institutions.

Under Which of the Following Circumstances Would the Federal Reserve