Possible ways for the Fed to increase the money supply include ________ the rediscount rate and ________ reserve requirements.

Question

Quizplus · Accepted Answer

Lowering the rediscount rate and lowering reserve requirements both increase the money supply. When the Fed lowers the rediscount rate, it encourages banks to borrow money from the central bank at lower interest rates, which in turn, allows banks to lend more to individuals and businesses. Similarly, when the Fed lowers reserve requirements, it requires banks to hold less money in reserves, allowing them to lend out more money, thus increasing the money supply.

Possible Ways for the Fed to Increase the Money Supply