To offset the effect of households and firms deciding to hold less of their money in checking account deposits and more in currency,the Federal Reserve could

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By buying Treasury securities, the Federal Reserve can increase the supply of currency in circulation, which can offset the effect of households and firms holding less money in checking account deposits. This can also help to lower interest rates and stimulate borrowing and spending. Raising the required reserve ratio or the discount rate could have the opposite effect, leading banks to hold more reserves or charge higher interest rates on loans, which could further reduce spending and economic activity. Lowering bank taxes might stimulate bank lending, but it might not necessarily offset the shift in money demand from checking to currency.

To Offset the Effect of Households and Firms Deciding to Hold