Question

Complete the following table:

Federal Reserve Action	Effect on the Money Supply (up or down?)
Lower the discount rate
Conduct open market purchase
Lower required reserve ratio
Raise the discount rate
Conduct open market sale
Raise the required reserve ratio

Answer 1

Lower the discount ratio will increase money supply. This is because more loans from the federal reserve will be taken by commercial banks and depository institutions. Money supply is up

Open market purchases. this will again increase the money supply because banking system will be equipped with more reserves. Money supply is up

Lower required reserve ratio increases the money supply because banks will have to keep a reduced fraction of their deposits as reserves at the federal reserve and the havmor excess reserves. Money supply is up

Raise the discount rate and money supply is down

Conduct open market sale and money supply is down

Raise the required reserve ratio and money supply is down