A combination of a decrease in the discount rate and an increase in reserve requirements would:
A)increase the money supply.
B)decrease the money supply.
C)leave the money supply unchanged.
D)have an indeterminate effect on the money supply.

Question

A combination of a decrease in the discount rate and an increase in reserve requirements would:
A)​increase the money supply.
B)​decrease the money supply.
C)​leave the money supply unchanged.
D)​have an indeterminate effect on the money supply.

Quizplus · Accepted Answer

A decrease in the discount rate typically encourages banks to borrow more from the central bank, which can increase the money supply. However, an increase in reserve requirements reduces the amount of funds banks can lend out, potentially decreasing the money supply. The net effect on the money supply is uncertain without knowing the relative magnitudes of these changes, hence the effect is indeterminate.

A Combination of a Decrease in the Discount Rate and an Increase