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

When the Fed increases the discount rate, it makes it more expensive for banks to borrow from the Fed. This leads to banks lending less money, which ultimately causes the money supply in the economy to decrease.

Which of the Following Policy Actions by the Fed Would