If the Federal Reserve wishes to increase the money supply, it should:
A) decrease the discount rate.
B) increase interest paid on reserves.
C) sell government bonds.
D) decrease the monetary base.

Question

Quizplus · Accepted Answer

If the Federal Reserve wishes to increase the money supply, it should decrease the discount rate. When the discount rate is decreased, it becomes cheaper for banks to borrow money from the Federal Reserve. As a result, banks have more money to lend out to consumers and businesses, which increases the money supply.

If the Federal Reserve Wishes to Increase the Money Supply