If the Fed wanted to use all of its policy variables to decrease the supply of money, which of following would that include?
A)Increasing its open market sales of government securities.
B)Increasing the required reserve ratio.
C)Decreasing the interest rate it pays banks on bank reserves.
D)It would include all of the above.

Question

If the Fed wanted to use all of its policy variables to decrease the supply of money, which of following would that include?
A)​Increasing its open market sales of government securities.
B)​Increasing the required reserve ratio.
C)​Decreasing the interest rate it pays banks on bank reserves.
D)​It would include all of the above.

Quizplus · Accepted Answer

All the options listed are methods by which the Federal Reserve can decrease the money supply. Increasing open market sales of government securities takes money out of circulation. Increasing the required reserve ratio limits the amount banks can lend, effectively reducing the money supply. Decreasing the interest rate it pays on bank reserves encourages banks to lend more rather than hold reserves, which can decrease the money supply by reducing excess reserves.

If the Fed Wanted to Use All of Its Policy