If the Fed wishes to increase the money supply, it can: Question 11 options: buy bonds from a bank, giving the bank cash in return, which it can then lend out. sell a bond to bank, and take the money it receives in exchange out of circulation in the economy. buy a bond from a bank, requiring the bank to hold the money it receives as excess reserves. sell a bond to a bank, and take the money it receives and lend it out to someone else.

Fed can able to increase and decrease in the economy by using the instruments like bank rate, cash reserve ratio, statutory liquidity ratio, and open market operation.buy bonds from a bank, giving the bank cash in return, which it can then lend out. Through buying bond from the bank, funds flow from fed to commercial bank and then commercial bank use the same for lending activity. So the money supply increase in the economy.

Answered: If the Fed wishes to increase the money…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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If the Fed wishes to increase the money supply, it can:

Question 11 options:

	buy bonds from a bank, giving the bank cash in return, which it can then lend out.
	sell a bond to bank, and take the money it receives in exchange out of circulation in the economy.
	buy a bond from a bank, requiring the bank to hold the money it receives as excess reserves.
	sell a bond to a bank, and take the money it receives and lend it out to someone else.

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

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