If the Fed was to use all of its three most common tools to increase the money supply, it would:
A)buy bonds, reduce the discount rate, and reduce reserve requirements.
B)sell bonds, reduce the discount rate, and reduce reserve requirements.
C)sell bonds, reduce the discount rate, and increase reserve requirements.
D)sell bonds, increase the discount rate, and increase reserve requirements.

Question

If the Fed was to use all of its three most common tools to increase the money supply, it would:
A)​buy bonds, reduce the discount rate, and reduce reserve requirements.
B)​sell bonds, reduce the discount rate, and reduce reserve requirements.
C)​sell bonds, reduce the discount rate, and increase reserve requirements.
D)​sell bonds, increase the discount rate, and increase reserve requirements.

Quizplus · Accepted Answer

The Fed can increase the money supply by buying bonds, which injects money into the economy. Additionally, reducing the discount rate makes it cheaper for banks to borrow money, leading to increased lending and an expansion of the money supply. Finally, reducing reserve requirements allows banks to hold less cash reserves, freeing up more funds for lending and increasing the money supply. Therefore, the combination of all three tools- buying bonds, reducing the discount rate, and reducing reserve requirements- would be the most effective at increasing the money supply.

If the Fed Was to Use All of Its Three