ECONOMICS
FISCAL POLICY
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
raise the discount rate
|
|
|
raise the required reserves
|
|
|
buy bonds/securities
|
|
|
print more money
|
Detailed explanation-1: -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.
Detailed explanation-2: -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: -Open Market Operations If the Fed buys bonds in the open market, it increases the money supply in the economy by swapping out bonds in exchange for cash to the general public. Conversely, if the Fed sells bonds, it decreases the money supply by removing cash from the economy in exchange for bonds.
Detailed explanation-4: -Borrowing by the government from the Central Bank will increase the money supply in the economy, because it will be spent by the government on public.
Detailed explanation-5: -The Fed purchases securities from a bank (or securities dealer) and pays for the securities by adding a credit to the bank’s reserve (or to the dealer’s account) for the amount purchased.