Question

The Federal Reserve wants to increase the money supply in the United States. What is the Federal Reserve likely to do

to accomplish this?
A)
reduce the discount rate
B)
sell securities on the open market
increase the reserve reguirement for banks
D)
require banks to hold a reserve for all types of deposits

Answer 1

A, reduce the discount rate

Step-by-step explanation:

Discount rate refers to the amount of Interest that the Federal reserve charge to the banks if the banks want to borrow money from the Federal reserve.

If the federal reserve reduce the discount rate, the banks will be able to afford to larger amount of money from them. This will increase the amount of money that they can loaned to the citizens for their business or consumption activities. It increase the amount of money supply that exist in the market.