BANKING AFFAIRS

Detailed explanation-1: -The Fed can influence the money supply by modifying reserve requirements, which generally refers to the amount of funds banks must hold against deposits in bank accounts. By lowering the reserve requirements, banks are able to loan more money, which increases the overall supply of money in the economy.

Detailed explanation-2: -Conducting monetary policy If the Fed, for example, buys or borrows Treasury bills from commercial banks, the central bank will add cash to the accounts, called reserves, that banks are required keep with it. That expands the money supply.

Detailed explanation-3: -It is responsible for managing monetary policy and regulating the financial system. It does this by setting interest rates, influencing the supply of money in the economy, and, in recent years, making trillions of dollars in asset purchases to boost financial markets.

Detailed explanation-4: -If the Fed increases the interest rate of reserves, banks will want to keep higher reserves. This will reduce the money multiplier as higher reserves effectively mean a higher reserve ratio. A fall in the money multiplier will reduce the loans given out by banks, reducing the money supply.