BUSINESS ADMINISTRATION
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Raise the Federal Discount Rate
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Buy securities on the open market
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Increase Reserve Requirements
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Open additional financial institutions
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Detailed explanation-1: -To increase the money supply, the Fed will purchase bonds from banks, which injects money into the banking system. To decrease the money supply, the Fed will sell bonds to banks, removing capital from the banking system.
Detailed explanation-2: -The FOMC changes monetary policy primarily by raising or lowering its target for the federal funds rate, the interest rate for overnight borrowing between banks. Lowering the target rate represents an “easing” of monetary policy, while increasing the target rate is a “tightening” of policy.
Detailed explanation-3: -To increase the (growth of the) money supply, the Fed could either buy bonds, lower the reserve requirement ratio, or lower the discount rate. To decrease the (growth of the) money supply, the Fed could either sell bonds, raise the reserve requirement ratio, or raise the discount rate. 24.
Detailed explanation-4: -One approach has been to purchase large quantities of financial instruments from the market. This so-called quantitative easing increases the size of the central bank’s balance sheet and injects new cash into the economy.