Which of the following policy actions by the Fed would cause the money supply to decrease?
A) an open market purchase of government securities
B) a decrease in required reserve ratios
C) a decrease in the discount rate
D) an open-market sale of government securities

Question

Quizplus · Accepted Answer

An open-market sale of government securities would decrease the money supply because it involves the Fed selling securities to banks and individuals, which reduces the amount of money in circulation. The other options would all increase the money supply: an open market purchase of government securities would involve the Fed buying securities from banks and individuals, injecting money into the economy; a decrease in required reserve ratios would allow banks to lend out more money, increasing the money supply; and a decrease in the discount rate would encourage banks to borrow more from the Fed, increasing the amount of money in circulation.

Which of the Following Policy Actions by the Fed Would