Which of the following policy actions by the Fed would cause the money supply to decrease?
A) An open-market purchase of government securities.
B) A decrease in required reserve ratios.
C) An increase in the discount rate.
D) A decrease in the discount rate.

Question

Quizplus · Accepted Answer

An increase in the discount rate makes it more expensive for banks to borrow directly from the Fed, which means that they are less likely to do so. This reduces the amount of reserves in the banking system, which in turn decreases the money supply.

Which of the Following Policy Actions by the Fed Would