If the Fed wanted to stimulate the economy,it might
A)buy bonds to lower the money supply
B)sell bonds to lower the money supply
C)raise the discount rate to increase the money supply
D)lower the discount rate to increase the money supply
E)increase the required reserve ratio to lower the money supply

Question

Quizplus · Accepted Answer

If the Fed wants to stimulate the economy, it would want to increase the money supply, which would encourage borrowing and spending. Lowering the discount rate (the interest rate at which banks can borrow from the Fed) would encourage banks to borrow and lend more, increasing the money supply. Buying bonds would also increase the money supply, but selling bonds, raising the discount rate, and increasing the required reserve ratio would all decrease the money supply, which would be contractionary and not stimulative.

If the Fed Wanted to Stimulate the Economy,it Might