Recently, the Fed announced a reduction in the discount rate and the reserve requirement. These actions clearly suggest that the Fed intends to decrease the money supply.

Question

Quizplus · Accepted Answer

Reducing the reserve requirement will free up funds and encourage banks to make more loans. Reducing the discount rate will enable banks to borrow funds from the Fed at lower cost, thus also encouraging banks to make more loans. Thus, both policies are likely to increase the money supply.

Recently, the Fed Announced a Reduction in the Discount Rate