Question

If the Fed wanted to expand the money supply as part of an antirecession strategy, it coulda. increase the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.b. decrease the interest rate paid on excess reserves encouraging banks to extend more loans.c. increase the interest rate paid on excess reserves encouraging banks to extend more loans.d. decrease the interest rate paid on excess reserves encouraging banks to hold excess reserves rather than extend more loans.

Answer 1

Answer: The correct answer is choice b.

Explanation: If the Fed’s goal is to increase the money supply as part of an antirecession strategy they will decrease the interest rate that is paid on excess reserves. Decreasing the Fed’s rate will encourage the bank to extend more loans to the public, increasing the money supply in the economy.