ECONOMICS (CBSE/UGC NET)

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: -An increase in the supply of money works both through lowering interest rates, which spurs investment, and through putting more money in the hands of consumers, making them feel wealthier, and thus stimulating spending.

Detailed explanation-3: -If the Fed wants to increase the money supply, it will buy bonds, increasing the reserves of the banks that sell them. The money supply would increase because these banks would then have more money to lend.

Detailed explanation-4: -The Federal Reserve can control the money supply through something called quantitative easing. Quantitative easing is the process of buying and selling of assets backed by the Treasury Department.