The Fed can increase the money supply by conducting open market
A)sales and raising the discount rate.
B)sales and lowering the discount rate.
C)purchases and raising the discount rate.
D)purchases and lowering the discount rate.

Question

Quizplus · Accepted Answer

By conducting open market purchases, the Fed injects money into the economy, thereby increasing the money supply. Lowering the discount rate also encourages banks to borrow more money from the Fed, which can lead to an increase in the money supply as well. However, selling securities and raising the discount rate would have the opposite effect of reducing the money supply. Therefore, the correct answer is choice D.

The Fed Can Increase the Money Supply by Conducting Open