The Fed can reduce the federal funds rate by
A)decreasing the money supply. To decrease the money supply it could sell bonds.
B)decreasing the money supply. To decrease the money supply it could buy bonds.
C)increasing the money supply. To increase the money supply it could sell bonds.
D)increasing the money supply. To increase the money supply it could buy bonds.

Question

Quizplus · Accepted Answer

The Fed can reduce the federal funds rate by increasing the money supply, which it can do by buying bonds. This action injects money into the banking system, increasing the supply of money and putting downward pressure on interest rates.

The Fed Can Reduce the Federal Funds Rate by