ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Today, the Fed uses its tools to control the supply of money to help stabilize the economy. When the economy is slumping, the Fed increases the supply of money to spur growth. Conversely, when inflation is threatening, the Fed reduces the risk by shrinking the supply.

Detailed explanation-2: -To decrease the money supply, the Fed will sell bonds to banks, removing capital from the banking system. Open market operations have played a key part in navigating recent economic downtowns including the 2008 Global Financial Crisis and the COVID-19 recession.

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: -A larger money supply lowers market interest rates, making it less expensive for consumers to borrow. Conversely, smaller money supplies tend to raise market interest rates, making it pricier for consumers to take out a loan.