Question

Which of the following is contractionary money supply? U.S. Congress A. the Fed lowering the discount...

Which of the following is contractionary money supply?
U.S. Congress
A. the Fed lowering the discount rate
B. increasing the interest rate paid on reserves
C. the Fed buying government securities
D. lowering the required reserve ratio

Homework Answers

Answer #1

Answer :- Option(B)

When the interest rate paid on reserves increases then it will increase reserves which result in decrease in supply of money.

Option(A) is wrong because if we decrease discount rate it increases the money supply in economy.

Option(C) is wrong because when fed buys goverment securities then it increases money supply into the economy.

Option(D) is wrong because when reserve ratio is lowered then low reserves are kept in banks and now banks left with more money to give loans which eventually increases money supply in economy.

So Option(B) is correct.

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