Question

The Fed can reduce the federal funds rate by a. decreasing the money supply. To decrease the money supply it could buy bonds. b. increasing the money supply. To increase the money supply it could sell bonds. c. increasing the money supply. To increase the money supply it could buy bonds. d. decreasing the money supply. To decrease the money supply it could sell bonds.

Answer 1

Answer:

c. increasing the money supply. To increase the money supply it could buy bonds.

Explanation:

In the case when fed wants to decreased the rate related to the federal funds so here the money supply should be increased also in order to increased the money supply we need to purchased the bonds

Moreover, the increase in money supply should be equivalent to the reduction in the interest rate

Therefore the option c is correct