Which of the following actions would have the combined effect of raising the money supply and raising the money multiplier?
A) The Fed sells bonds and raises the reserve requirement
B) The Fed sells bonds and lowers the reserve requirement
C) The Fed buys bonds and raises the reserve requirement
D) The Fed buys bonds and lowers the reserve requirement

Question

Quizplus · Accepted Answer

When the Fed buys bonds, it injects new money into the economy, raising the money supply. When the reserve requirement is lowered, banks are required to keep less money in reserve, which allows them to lend out more money, thus increasing the money multiplier. Therefore, buying bonds and lowering the reserve requirement would have the combined effect of raising the money supply and raising the money multiplier.

Which of the Following Actions Would Have the Combined Effect