Which of the following policy actions by the Federal Reserve is likely to increase the money supply?
A)Sell government bonds, decrease reserve requirements, decrease the discount rate.
B)Sell government bonds, increase reserve requirements, increase the discount rate.
C)Buy government bonds, increase reserve requirements, decrease the discount rate.
D)Buy government bonds, decrease reserve requirements, decrease the discount rate.

Question

Quizplus · Accepted Answer

When the Fed buys government bonds, it injects money into the economy, increasing the money supply. Decreasing reserve requirements also increases the money supply by allowing banks to lend out more of their deposits. Decreasing the discount rate also makes it cheaper for banks to borrow money from the Fed and thus increases the amount of money in circulation. Therefore, D is the most likely choice to increase the money supply.

Which of the Following Policy Actions by the Federal Reserve