Asked by Grace Kushner on Jul 22, 2024
Verified
Which of the following policy actions by the Fed is likely to cause the money supply to decrease?
A) An open market purchase
B) A decrease in required reserve ratios
C) A decrease in the discount rate
D) An open market sale
Open Market Sale
The selling of government bonds to the public or banks by the central bank to control the money supply.
Discount Rate
The interest rate charged by central banks on loans offered to commercial banks or the rate used to discount future cash flows to present value.
Required Reserve Ratios
These are central bank regulations set on the minimum amount of reserves that commercial banks must hold against deposits.
- Distinguish and detail the mechanisms of monetary policy employed by the Federal Reserve, including operations in the open market, the discount rate, and reserve requirements.
Verified Answer
KP
Kaiyla PayneJul 24, 2024
Final Answer :
D
Explanation :
An open market sale by the Fed results in a decrease in the money supply, as it involves the Fed selling government securities to the public, thus decreasing the reserves held by banks and causing a decrease in the amount of money they can lend out. The other choices would result in an increase in the money supply.
Learning Objectives
- Distinguish and detail the mechanisms of monetary policy employed by the Federal Reserve, including operations in the open market, the discount rate, and reserve requirements.