If the Fed wishes to increase the money supply it can:

Question

Quizplus · Accepted Answer

By decreasing the discount rate, banks can borrow funds at a lower cost, allowing them to lend out more money, thereby increasing the money supply. This makes "C" the best choice in this scenario. Raising the federal funds rate (A) would have the opposite effect as it would encourage banks to lend less, decreasing the money supply. Selling bonds on the open market (B) would also decrease the money supply as it would take funds out of circulation. Increasing the required reserve ratio (D) would require banks to hold more reserves, limiting the amount of money they can lend out and decreasing the money supply.

If the Fed Wishes to Increase the Money Supply It