Question

suppose the fed expects a reduction in cash leakages. before october 2008, it would offset the effect of this on the money supply bya. selling government securities.b. lowering the discount rate.c. buying government securities.d. lowering the required reserve ratio.

Answer 1

The correct answer is lowering the required reserve ratio. When the Federal Reserve expects a reduction in cash leakages, it can offset the effect on the money supply by lowering the required reserve ratio. The correct answer is d. lowering the required reserve ratio.

Step-by-step explanation:

When the Federal Reserve expects a reduction in cash leakages, it can offset the effect on the money supply by lowering the required reserve ratio. The required reserve ratio is the percentage of deposits that banks are required to hold as reserves. By lowering this ratio, banks have more reserves available to lend, which increases the money supply in the economy. The correct answer is d. lowering the required reserve ratio.

For example, if the required reserve ratio is 10% and a bank receives a $100 deposit, it would be required to hold $10 as reserves and can lend out $90. If the required reserve ratio is lowered to 5%, the bank would only need to hold $5 as reserves and can lend out $95, increasing the money supply.