Which of the following would cause the money supply to increase?
A) An open market purchase by the Fed.
B) A reduction in the discount rate.
C) A reduction in required ratios.
D) All of the above.

Question

Quizplus · Accepted Answer

An open market purchase by the Fed, a reduction in the discount rate, and a reduction in required ratios all cause an increase in the money supply. Open market purchases involve the Fed buying securities from banks, which adds dollars to the economy. A reduction in the discount rate makes it easier for banks to borrow money from the Fed, which leads to an increase in lending and money creation. Lastly, a reduction in required ratios lowers the amount of reserves banks are required to hold, which also encourages more lending and money creation.

Which of the Following Would Cause the Money Supply to Increase