Which of the following changes to the money supply can the government take to stimulate a slowing of the economy?(1 point)

Question

Responses

It can increase the money supply by selling bonds in the open market.
It can increase the money supply by selling bonds in the open market.

It can increase the money supply by decreasing the reserve requirement.
It can increase the money supply by decreasing the reserve requirement.

It can decrease the money supply by buying bonds in the open market.
It can decrease the money supply by buying bonds in the open market.

It can decrease the money supply by increasing the discount rate.

Answer 1

To stimulate a slowing economy, the government (through the central bank) typically takes steps to increase the money supply. Among the provided options, the correct action to achieve this would be:

It can increase the money supply by decreasing the reserve requirement.

Decreasing the reserve requirement allows banks to lend more of their deposits, thereby increasing the money supply and encouraging spending and investment in the economy.

The other options are incorrect for stimulating the economy:

• Selling bonds in the open market would decrease the money supply.
• Buying bonds in the open market would increase the money supply, but that option is phrased incorrectly.
• Increasing the discount rate would decrease the money supply by making borrowing more expensive for banks.

So, the correct response is: It can increase the money supply by decreasing the reserve requirement.