The Fed can decrease the money supply by conducting open-market
A)sales or by raising the discount rate.
B)sales or by lowering the discount rate.
C)purchases or by raising the discount rate.
D)purchases or by lowering the discount rate.

Question

Quizplus · Accepted Answer

The Fed can decrease the money supply by conducting open-market sales, which involves selling government securities to banks, thus reducing the amount of reserves available for lending. Alternatively, the Fed can also decrease the money supply by raising the discount rate, which makes it more expensive for banks to borrow from the Fed and reduces the incentive to lend money. However, the question specifically asks for the best choice, and since option A is the only one that includes the correct combination of decreasing the money supply through open-market sales and raising the discount rate, it is the best choice.

The Fed Can Decrease the Money Supply by Conducting Open-Market