Question

(PLZ HELP) How does the Federal Reserve reduce the money supply in the economy? Using monetary policy, the Federal Reserve increases to reduce the money supply in the economy.

Answer 1

Using monetary policy, the Federal Reserve increases to reduce the money supply in the economy .

Step-by-step explanation:

• Central banks use different techniques, described monetary policy, to improve or reduce the volume of money in the economy.
• The Fed can raise the money flow by reducing the resources demands for banks, which enables them to grant more capital.
• Conversely, by increasing the banks' reserve claims, the Fed can reduce the volume of the money amount.

Answer 2

The correct answer is Using monetary policy, the Federal Reserve increases to reduce the money supply in the economy

This means that when there's a danger of inflation, that is of a high supply of money that is unnecessary, they increase the reserve and this reduces the amount of money on the market, which prevents the inflation. It also works the other way around, if there's not enough money they help by decreasing the reserve.