The Fed increases the reserve requirement and makes open market purchases.Which of these by itself will increase the money supply?
A)Neither the increase in the reserve requirement nor the open market purchases.
B)Both the increase in the reserve requirement and the open market purchases.
C)Only the increase in the reserve requirement.
D)Only the open market purchases.

Question

Quizplus · Accepted Answer

Only the open market purchases will increase the money supply as the Fed is increasing the amount of money available to borrowers, which then increases spending and the overall money supply. Increasing the reserve requirement will have the opposite effect as banks will have less money to lend, ultimately decreasing the money supply.

The Fed Increases the Reserve Requirement and Makes Open Market