Asked by Allison Brown on Jun 29, 2024
Verified
The Federal Reserve System could increase the money supply by
A) selling United States bonds.
B) reducing reserve requirements and lowering discount rates.
C) increasing marginal tax rates.
D) raising discount rates.
E) rationing consumer credit.
Reserve Requirements
Central bank regulations that set the minimum amount of reserves that must be held by commercial banks.
Money Supply
The money supply is the total amount of money—cash, coins, and balances in bank accounts—in circulation within a country's economy at a given time.
Discount Rates
Discount rates refer to the interest rate charged to commercial banks and other financial institutions for loans received from the central bank's discount window.
- Explain the various monetary policy tools used by the Federal Reserve to influence the money supply.
Verified Answer
GA
GURNOOR AULAKHJul 01, 2024
Final Answer :
B
Explanation :
By reducing reserve requirements and lowering discount rates, banks will be able to borrow more money from the Federal Reserve and create more loans, thereby increasing the money supply in circulation. Selling United States bonds by the Federal Reserve reduces the money supply. Increasing marginal tax rates and raising discount rates will also reduce the money supply. Rationing consumer credit is a method for controlling the use of credit and does not directly affect the money supply.
Learning Objectives
- Explain the various monetary policy tools used by the Federal Reserve to influence the money supply.