To _____ the money supply, the Federal Reserve could _____.

Question

Quizplus · Accepted Answer

To increase the money supply, the Federal Reserve needs to conduct open-market purchases, which involves buying government bonds from the public. This increases the amount of money in circulation, thereby boosting the money supply. Option A is incorrect because decreasing the money multiplier would reduce the potential expansion of the money supply. Option B is incorrect because lowering the reserve requirement would increase the amount of cash banks must hold in reserves, which would reduce the amount of money they can lend out. Option D is incorrect because lowering the discount rate would encourage banks to borrow more from the Fed, but this would not necessarily lead to an increase in the money supply.

To _____ the Money Supply, the Federal Reserve Could _____

To _ the Money Supply, the Federal Reserve Could _