Asked by Baylee Tullo on Jul 17, 2024
Verified
Which of the following policies can the Fed follow to increase the money supply?
A) Reduce the interest rate on reserves
B) Increase reserve requirements for banks
C) Reduce the quantity of funds available through the Term Auction Facility
D) Sell government bonds
Interest Rate
The percentage of a sum of money charged for its use, often expressed as an annual percentage.
Reserve Requirements
The minimum proportion of customer deposits and notes that a bank must hold as reserves rather than lending out, as mandated by central banking authorities.
Government Bonds
Securities issued by a government to finance its expenditures, offering regular interest payments and the return of the original investment at maturity.
- Examine the impact of open market operations on financial institutions' activities and the circulation of money.
Verified Answer
ZS
zinabu shiferawJul 18, 2024
Final Answer :
A
Explanation :
Reducing the interest rate on reserves encourages banks to lend more rather than hold onto reserves, thereby increasing the money supply.
Learning Objectives
- Examine the impact of open market operations on financial institutions' activities and the circulation of money.