Which of the following would be most appropriate if the Federal Reserve wanted to increase the money supply in order to stimulate the economy?
A) Buy U.S. government securities.
B) Force the Treasury to reduce the national debt.
C) Raise the discount rate.
D) Increase the reserve requirements.

Question

Quizplus · Accepted Answer

Buying U.S. government securities injects money into the economy by increasing the reserves of banks and encouraging them to lend more, which increases the money supply. Choice B (forcing the Treasury to reduce the national debt) does not directly affect the money supply. Choice C (raising the discount rate) and choice D (increasing the reserve requirements) are both tools used by the Federal Reserve to decrease the money supply and control inflation, so they would not be appropriate for increasing the money supply to stimulate the economy.

Which of the Following Would Be Most Appropriate If the Federal