In addition to lowering the discount rate to increase the money supply, the Fed could also
A) purchase bonds on the open market and raise reserve requirements.
B) sell bonds on the open market and raise reserve requirements.
C) purchase bonds on the open market and lower reserve requirements.
D) sell bonds on the open market and lower reserve requirements.

Question

Quizplus · Accepted Answer

By purchasing bonds on the open market, the Fed would increase the amount of money in circulation. Lowering reserve requirements would also increase the money supply as banks would have to hold less money in reserve and could lend out more. Selling bonds would decrease the money supply, which is not desirable in this scenario. Increasing reserve requirements also decreases the money supply, which is not helpful for increasing it.

In Addition to Lowering the Discount Rate to Increase the Money