To increase the money multiplier, the Fed can:
A)conduct open-market purchases.
B)conduct open-market sales.
C)raise the required reserve ratio.
D)lower the required reserve ratio.

Question

Quizplus · Accepted Answer

Lowering the required reserve ratio would increase the amount of money banks can lend out, which would lead to an increase in the money supply and the money multiplier. Conducting open-market purchases (Choice A) can also increase the money supply, but it is not directly related to the money multiplier. Conducting open-market sales (Choice B) would decrease the money supply and the money multiplier. Raising the required reserve ratio (Choice C) would decrease the amount banks can lend out, which would lead to a decrease in the money supply and the money multiplier.

To Increase the Money Multiplier, the Fed Can