If the Fed wanted to shift to a more restrictive monetary policy, it would
A) expand the reserves available to the banking system, which would drive down short term interest rates.
B) reduce the reserves available to the banking system, which would drive down short term interest rates.
C) expand the reserves available to the banking system, which would drive up short term interest rates.
D) reduce the reserves available to the banking system, which would drive up short term interest rates.

Question

Quizplus · Accepted Answer

If the Fed wanted to shift to a more restrictive monetary policy, it would need to reduce the reserves available to the banking system. By doing so, the Fed can drive up short term interest rates, making it more expensive for banks to borrow money and thus reducing the amount of money in circulation. This is known as a contractionary monetary policy.

If the Fed Wanted to Shift to a More Restrictive