The Federal Reserve may contract the money supply by
1) selling securities
2) buying securities
3) raising reserve requirements
4) lowering reserve requirements

Question

The Federal Reserve may contract the money supply by​
1) selling securities
2) buying securities
3) raising reserve requirements
4) lowering reserve requirements

Quizplus · Accepted Answer

When the Federal Reserve sells securities, money is withdrawn from the economy and the money supply decreases. Similarly, when reserve requirements are raised, banks are required to hold more reserves and have less money available to lend, which also decreases the money supply. Therefore, options 1 and 3 are correct. Buying securities and lowering reserve requirements would have the opposite effect of expanding the money supply.

The Federal Reserve May Contract the Money Supply By​

The Federal Reserve May Contract the Money Supply By