The Federal Reserve can increase aggregate demand by:
A) Reducing the money supply
B) Reducing the discount rate
C) Raising the reserve requirement
D) Selling government securities in the open market

Question

Quizplus · Accepted Answer

Reducing the discount rate, which is the interest rate at which banks can borrow money from the Federal Reserve, encourages banks to borrow more and lend to consumers and businesses at lower interest rates. This leads to an increase in spending and investment, ultimately increasing aggregate demand. Reducing the money supply or raising the reserve requirement both tend to restrict lending and reduce aggregate demand. Selling government securities in the open market has the same effect as reducing the money supply.

The Federal Reserve Can Increase Aggregate Demand By