Which of the following lists contains only actions that increase the money supply?
A)make open market purchases; raise the reserve requirement ratio
B)make open market purchases; lower the reserve requirement ratio
C)make open market sales; raise the reserve requirement ratio
D)make open market sales; lower the reserve requirement ratio

Question

Quizplus · Accepted Answer

Making open market purchases means that the central bank is buying securities from the market and paying for them with new money, which increases the money supply. Lowering the reserve requirement ratio means that banks can hold fewer reserves relative to their deposits, allowing them to lend more money, which also increases the money supply. Choice A is incorrect because raising the reserve requirement ratio reduces the amount of money banks can lend, which decreases the money supply. Choice C and D are incorrect because making open market sales means that the central bank is selling securities to the market and withdrawing money from circulation, which decreases the money supply.

Which of the Following Lists Contains Only Actions That Increase