Which of the following would cause an increase in M1?
A) A decrease in the discount rate.
B) An increase in the required ratio of reserves to deposits.
C) An open market operation where the RBA buys bonds from the public.
D) Both A and B.
E) Both B and C.

Question

Quizplus · Accepted Answer

An open market operation where the RBA buys bonds from the public would increase the amount of reserves in the banking system, which would in turn increase the money supply, specifically M1. A decrease in the discount rate or an increase in the required ratio of reserves to deposits would have the opposite effect, and decrease the money supply.

Which of the Following Would Cause an Increase in M1