In order to change the money supply, the Fed might use which of the following tools?
A) Legislation
B) The reserve requirement
C) Fiscal policy
D) Deficit spending

Question

Quizplus · Accepted Answer

The Fed can adjust the reserve requirement, or the percentage of deposits banks are required to hold in reserve, in order to change the money supply. By lowering the reserve requirement, banks are able to lend out more money, increasing the supply. By raising the reserve requirement, banks are required to hold more money in reserve, decreasing the supply. The other options listed (legislation, fiscal policy, and deficit spending) are either not within the direct control of the Fed or are not tools that would be used to change the money supply.

In Order to Change the Money Supply, the Fed Might