The tool of monetary policy that allows the Federal Reserve to decrease the money supply is C. Increasing the reserve requirement on banks.

Here's the step by step explanation:

A. Purchasing treasury securities on the open market - This action actually increases the money supply. When the Federal Reserve buys these securities, banks are left with more money which they can lend out, increasing the overall money supply.

B. Decreasing the discount rate on short-term loans - This also increases the money supply. When the discount rate is lowered, it becomes cheaper for banks to borrow money from the Federal Reserve. This means they have more money to lend out, which increases the money supply.

C. Increasing the reserve requirement on banks - This decreases the money supply. When the reserve requirement is increased, banks are required to hold more money and can lend out less, which decreases the money supply.

D. Lowering interest on reserves paid to banks - This could potentially increase the money supply. If banks are paid less interest on their reserves, they may be more inclined to lend out more of their reserves, which would increase the money supply.

Question

The tool of monetary policy that allows the Federal Reserve to decrease the money supply is C. Increasing the reserve requirement on banks.

Here's the step by step explanation:

A. Purchasing treasury securities on the open market - This action actually increases the money supply. When the Federal Reserve buys these securities, banks are left with more money which they can lend out, increasing the overall money supply.

B. Decreasing the discount rate on short-term loans - This also increases the money supply. When the discount rate is lowered, it becomes cheaper for banks to borrow money from the Federal Reserve. This means they have more money to lend out, which increases the money supply.

C. Increasing the reserve requirement on banks - This decreases the money supply. When the reserve requirement is increased, banks are required to hold more money and can lend out less, which decreases the money supply.

D. Lowering interest on reserves paid to banks - This could potentially increase the money supply. If banks are paid less interest on their reserves, they may be more inclined to lend out more of their reserves, which would increase the money supply.

Knowee AI · Accepted Answer

The tool of monetary policy that allows the Federal Reserve to decrease the money supply is C. Increasing the reserve requirement on banks.

Here's the step by step explanation:

A. Purchasing treasury securities on the open market - This action actually increases the money supply. When the Federal Reserve buys these securities, banks are left with more money which they can lend out, increasing the overall money supply.

B. Decreasing the discount rate on short-term loans - This also increases the money supply. When the discount rate is lowered, it becomes cheaper for banks to borrow money from the Federal Reserve. This means they have more money to lend out, which increases the money supply.

C. Increasing the reserve requirement on banks - This decreases the money supply. When the reserve requirement is increased, banks are required to hold more money and can lend out less, which decreases the money supply.

D. Lowering interest on reserves paid to banks - This could potentially increase the money supply. If banks are paid less interest on their reserves, they may be more inclined to lend out more of their reserves, which would increase the money supply.

Which tool of monetary policy allows the Federal Reserve to decrease the money supply?A.Purchasing treasury securities on the open marketB.Decreasing the discount rate on short-term loansC.Increasing the reserve requirement on banksD.Lowering interest on reserves paid to banks

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