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Which of the following policies by the Federal Reserve is likely to decrease the money supply?...

Which of the following policies by the Federal Reserve is likely to decrease the money supply?

A. None of these

B. Reducing reserve requirements

C. Selling government bonds

D. Decreasing the discount rate

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Answer #1

Answer to the question:

Option C: Selling government bonds

Exolanation: The fedral reserve in order to raise the money supply in the market may take various steps like to reduce the reserve requirement, buying government bonds etc. Now, give all the measures above, the FED will choose to sell the governmnet bonds in the open market to reduce the money supply in the market. The selling of the government bonds reduces the cash holding of the people and it will again reduce the moneyy supply in the economy. Such measures are undertaken to control the inflationary situation.

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