Question

The Fed can change the money supply by:______ a. changing bank reserves through the sale or purchase of government securities. b. changing the quantities of required and excess reserves by altering the legal reserve ratio. c. changing the discount rate so as to encourage or discourage commercial banks in borrowing from the central banks. d. all of the above.

Answer 1

all of the above.

Step-by-step explanation:

The Fed as a monetary authority is mandated to regulate amount of money that is in circulation.in an economy. To do this they use various mechanisms to control money supply.

Three strategies used are:

Open market operations: this is when monetary authorities are involved in buying and selling of securities inorder to control liquidity in the economy. For example the Fed can sell Treasury bills to mop up excess cash in the economy.

Reserves: banks are required to deposit a certain amount of money with the monetary authority. This will limit the amount banks have to give out as loans.

Discount rate: is the rate at which the Fed lends to banks. At high discount rates banks will lend aout less money because the rate is too high for most people.

Answer 2

d. all of the above

Step-by-step explanation:

Base on the scenario been described in the question, the federal government has several ways of changing the supply of money, this ways are

1. Changing the discount rate so as to encourage or discourage commercial banks in borrowing from the central banks.

2. Changing bank reserves through the sale or purchase of government securities

3. Changing the quantities of required and excess reserves by altering the legal reserve ratio.

All this listed are ways the fed use in changing the supply of money.