When the Fed wishes to decrease the money supply, it can
A)ask people to buy more bonds.
B)turn additional funds over to the Treasury.
C)increase the required reserve ratio.
D)decrease the required reserve ratio.

Question

Quizplus · Accepted Answer

Increasing the required reserve ratio means that banks have to hold more reserves and have less money available to loan out, which ultimately decreases the money supply in the economy. Options A and B are not directly related to decreasing the money supply, and decreasing the required reserve ratio would actually increase the amount of money banks have to loan out, and therefore increase the money supply.

When the Fed Wishes to Decrease the Money Supply, It