Chapter 15, Problem 14AA

To determine

To list:The methods Fed uses to change the money supply.

Explanation of Solution

The table below shows the methods which Fed uses to change the money supply:

Method	To Increase the Money Supply…	To Decrease the Money Supply…
Change reserve requirements	Lower reserve requirements to allow banks to lend more.	Increase the reserve requirements so that banks can lend less.
Change discount rates	Lower the discount rates so that banks can borrow more money and lend more money to their customers.	Increase the discount rates so that banks can borrow less money and hence less money is available for customers.
Open market operations	Fed can buy government bonds so that the security dealers have more cash and money supply is increased.	Fed can sell bonds from account to get cash from the security dealers and hence money supply is decreased.

Table (1)

Economics Concept Introduction

Introduction:

Regulating the money supply- It is the primary responsibility of the Federal Reserve to regulate the supply of money in the economy. To regulate the money supply in the economy Fed applies various monetary and fiscal policies.