An increase in the supply of money in an economy could be caused by (choose all that apply) : a. an increase in the discount rate. b. a decrease in the discount rate. c. an increase in the required reserve ratio. d. a decrease in the required reserve ratio. e. a sale of government securities by the Fed. f. a purchase of government securities by the Fed

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Business

Teresa Manning

25 September, 13:22

An increase in the supply of money in an economy could be caused by (choose all that apply) : a. an increase in the discount rate. b. a decrease in the discount rate. c. an increase in the required reserve ratio. d. a decrease in the required reserve ratio. e. a sale of government securities by the Fed. f. a purchase of government securities by the Fed

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String Bean · Answer 1

The first two answers are the opposites of each other so it's likely that one of the is correct and indeed - a decrease in the discount rate means that it's cheaper for the banks to borrow money, so there will be an increase in money amount! (b is correct)

The same is true for the other two options - and d) is correct because it "unfreezes" the money that can be used

Also the last two options - a sale here means that the government is borrowing the money from the people. However, this doesn't change the supply of the money, only how the money is distributed. (neither are correct)