Question

To decrease the money supply, the Federal Reserve could a. increase the discount rate. decrease the required reserve ratio. b. forbid the reselling of U.S. Treasury securities. c. encourage banks to lend money to borrowers. d. conduct an open market purchase of U.S. Treasury securities.

Answer 1

Answer:

The correct answer is letter "A": increase the discount rate.

Explanation:

Changes in the supply of money in a country are made through monetary policies. In the U.S. the Federal Reserve (Fed) is the central bank in charge of regulating the fluctuations of the money supply. The most common way to decrease it is by raising the interest rate of short-term loans which increases the discount rate. By doing this, financial institutions will request fewer loans from the Fed, thus, less money in the form of loans can be offered in the market.