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

Question

Quizplus · Accepted Answer

In order to engage in contractionary monetary policy, the Federal Reserve would need to decrease the money supply, which can be done by raising the federal funds rate target. This makes it more expensive for banks to borrow money, which will reduce the amount of money they have available to lend out, effectively decreasing the money supply. Lowering the primary credit rate would actually stimulate lending and increase the money supply. Lowering the reserve ratio would also increase the amount of money banks have available to lend out, and purchasing government debt would inject more money into the economy and also increase the money supply.

If the Federal Reserve Wished to Engage in Contractionary Monetary