The Fed can reduce the money supply by

Question

Quizplus · Accepted Answer

Selling securities to banks reduces the reserves of banks, which in turn reduces their ability to lend money. This reduces the money supply in circulation. Buying securities from banks or private citizens injects money into the economy, increasing the money supply. Issuing new Federal Reserve notes also increases the money supply. Saving failing banks may also involve injecting money into the economy, depending on the specific situation. However, selling securities is a direct method used by the Fed to reduce the money supply.

The Fed Can Reduce the Money Supply by