If the Fed conducted an open market sale of government bonds and raised the discount rate:

Question

Quizplus · Accepted Answer

An open market sale of government bonds would decrease the reserves of banks, leading to a reduction in loans and deposits and hence, a decrease in the money supply. Raising the discount rate would further discourage borrowing from the Fed, thereby reducing the reserves of banks and leading to a further decrease in the money supply. Thus, both these actions would result in a decrease in the money supply.

If the Fed Conducted an Open Market Sale of Government