If the Fed wants to increase bank reserves,it can:
A) Raise the discount rate.
B) Buy government bonds from the public.
C) Increase the minimum reserve ratio.
D) Decrease the money multiplier.

Question

Quizplus · Accepted Answer

When the Fed buys government bonds from the public, it increases the reserves of the banks that sell the bonds. This is known as open market operations and is the primary tool used by the Fed to increase or decrease bank reserves. Therefore, choice B is the best answer.

A) When the Fed raises the discount rate, it discourages banks from borrowing from the Fed and reduces the reserves available to them. This would have the opposite effect of increasing bank reserves. 
C) Increasing the minimum reserve ratio would require banks to hold a higher percentage of their deposits as reserves, which would reduce the amount of money they have available to lend out and would decrease bank reserves. This would have the opposite effect of increasing bank reserves. 
D) Decreasing the money multiplier would also reduce the amount of money banks have available to lend out and would decrease bank reserves. This would have the opposite effect of increasing bank reserves.

If the Fed Wants to Increase Bank Reserves,it Can