Today,the Federal Reserve System can contract the money supply by

Question

Quizplus · Accepted Answer

The Federal Reserve can contract the money supply by increasing the discount rate, which discourages banks from borrowing from the Fed and reduces the amount of money in circulation. It can also increase reserve requirements, which forces banks to hold a larger portion of deposits as reserves rather than lending them out, further reducing the money supply. Finally, the Fed can sell U.S. Treasury and federal agency securities, which reduces the amount of money available for banks to lend out. Therefore, all these methods can be used in combination to contract the money supply.

Today,the Federal Reserve System Can Contract the Money Supply by