Which of the following actions of the Fed would increase the money supply?
A) The purchase of U.S. government securities.
B) A reduction in the discount rate.
C) A reduction in the required reserve ratio.
D) All of the above are correct.

Question

Quizplus · Accepted Answer

A) The purchase of U.S. government securities increases reserves of commercial banks, enabling them to lend more, which results in an increase in the money supply.
B) A reduction in the discount rate lowers the interest rate that commercial banks pay to borrow from the Fed, which encourages banks to borrow more, resulting in an increase in the money supply.
C) A reduction in the required reserve ratio decreases the amount of reserves that banks are required to hold, allowing them to lend more, which results in an increase in the money supply.

Which of the Following Actions of the Fed Would Increase