Question

Out of fears that the money supply is too large, the federal reserve has decided to decrease the money supply. how could the federal reserve accomplish this?

Answer 1

The money supply can be reduced by not continuing to print new bills. Banks could be asked not to distribute more than a set amount of money, thereby lessening the amount of money put into general circulation. Sellers could raise the price of their goods and services. When prices rise, people take a closer look at their goals and their disposable income. Cost of living usually results in more prudent spending, more savings, and less money in general circulation.