If the Federal Reserve wanted to increase the money supply, it could _____ the required reserve ratio, _____, and _____ bonds on the open market.

Question

Quizplus · Accepted Answer

If the Federal Reserve wants to increase the money supply, it can decrease the required reserve ratio, which means banks can hold less money in reserves and lend out more. It can also decrease the discount rate, which makes it cheaper for banks to borrow money from the Fed and therefore increases their ability to lend. Finally, it can buy bonds on the open market, which would increase the amount of money in circulation. So, the correct options are to decrease the required reserve ratio, decrease the discount rate, and buy bonds on the open market, which are all present in option B.

If the Federal Reserve Wanted to Increase the Money Supply