If the Fed wants to reduce bank reserves,it can:
A) Raise the discount rate or buy bonds on the open market.
B) Reduce the minimum reserve ratio or sell bonds on the open market.
C) Raise the discount rate or sell bonds on the open market.
D) Decrease the minimum reserve ratio or reduce the discount rate.

Question

Quizplus · Accepted Answer

To reduce bank reserves, the Fed can either raise the discount rate or sell bonds on the open market. This is because when the discount rate is raised, banks are less likely to borrow from the Fed, thereby decreasing their reserves. Similarly, when the Fed sells bonds on the open market, banks have to pay for them, thereby reducing their reserves. reducing the minimum reserve ratio or reducing the discount rate would increase bank reserves, and thus not achieve the goal.

If the Fed Wants to Reduce Bank Reserves,it Can