If the Fed wishes to increase the money supply, it could:

Question

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When the Fed buys bonds, it injects money into the economy by paying for those bonds with newly created funds. This increases the money supply. The other options listed would decrease the money supply. Increasing the reserve requirement means banks must hold more money in reserves and can lend out less. Increasing the discount rate makes borrowing from the Fed more expensive, also reducing lending activity. Printing more currency does not necessarily increase the money supply as the amount of currency in circulation does not determine the overall money supply.

If the Fed Wishes to Increase the Money Supply, It