Which of the following combinations would not produce conflicting effects on the supply of money?

Question

Quizplus · Accepted Answer

Conducting an open market purchase increases the supply of money by injecting reserves into the banking system, while lowering the discount rate also encourages banks to borrow from the Fed, thereby increasing the supply of money. These actions do not have conflicting effects on the supply of money. Option A would reduce the supply of money by increasing the required reserve ratio and increasing the interest rate on bank reserves, which would incentivize banks to hold onto their reserves rather than lend them out. Option C would also decrease the supply of money, as conducting an open market sale would reduce reserves in the banking system, and paying a higher interest rate on bank reserves would incentivize banks to hold onto their reserves. Therefore, the correct answer is B.

Which of the Following Combinations Would Not Produce Conflicting Effects