If the Fed wished to decrease interest rates, it could
A) increase the reserve requirement or conduct an open market sale.
B) increase the reserve requirement or conduct an open market purchase.
C) decrease the reserve requirement or conduct an open market sale.
D) decrease the reserve requirement or conduct an open market purchase.

Question

Quizplus · Accepted Answer

If the Fed wishes to decrease interest rates, it could decrease the reserve requirement or conduct an open market purchase. Decreasing the reserve requirement would allow banks to lend out more money, increasing the money supply and putting downward pressure on interest rates. Conducting an open market purchase would involve the Fed buying government securities, increasing the demand for these securities and driving down interest rates.

If the Fed Wished to Decrease Interest Rates, It Could