ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The FED would do this by reducing the money supply. Money can be sucked out of the economy by raising the reserve requirement, selling government bonds and securities through open market operations, and/or raising the discount rate.

Detailed explanation-2: -The Fed has several monetary policy tools it can use to fight off a recession. It can lower interest rates to spark demand and increase the amount of money in circulation via open market operations (OMO), including quantitative easing (QE), through which additional types of assets may be purchased by the Fed.

Detailed explanation-3: -The Federal Reserve responded aggressively to the financial crisis that emerged in the summer of 2007, including the implementation of a number of programs designed to support the liquidity of financial institutions and foster improved conditions in financial markets.

Detailed explanation-4: -Conversely, if the Fed wants to decrease the money supply, it sells bonds from its account, thus taking in cash and removing money from the economic system.

Detailed explanation-5: -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.