If the Federal Reserve wished to engage in contractionary monetary policy it could

Question

Quizplus · Accepted Answer

If the Federal Reserve wishes to engage in contractionary monetary policy, it needs to decrease the money supply. An increase in the primary credit rate would increase the borrowing cost for banks, resulting in banks reducing their lending activities, and hence, the money supply would decrease. Purchasing government debt or lowering the reserve ratio would increase the money supply, and decreasing the Federal Funds rate target would boost economic activity and cause inflation, and these policies are expansionary monetary policies.

If the Federal Reserve Wished to Engage in Contractionary Monetary