Question

Explain how the Federal Reserve may use the discount rate and the reserve requirement to increase the money supply. What impact should these actions have on employment and why?

Answer 1

In order the increase the money supply, the Federal Reserve would have to increase the discount rate and decrease the reserve requirement. Since these actions are expansionary, it would help to expand business activities and create jobs.

Answer 2

The Federal Reserve would have to increase the discount rate and decrease the reserve requirement to be able to increase the money supply. As actions by the Fed can affect the economy, any monetary policy changes may make it difficult for a business to retain employees.