Which list contains only actions that increase the money supply?
A) making open-market purchases; raising the reserve requirement ratio
B) making open-market purchases; lowering the reserve requirement ratio
C) making open-market sales; raising the reserve requirement ratio
D) making open-market sales; lowering the reserve requirement ratio

Question

Quizplus · Accepted Answer

Making open-market purchases involves buying government securities from banks and injecting money into the economy, which increases the money supply. Lowering the reserve requirement ratio also increases the money supply as it allows banks to lend out more money from a given amount of reserves. Therefore, both actions in choice B increase the money supply. The actions in the other choices either decrease the money supply (open-market sales) or have no effect (raising the reserve requirement ratio).

Which List Contains Only Actions That Increase the Money Supply