Explanation The Federal Reserve is the central bank of the US economy, and it is usually known as the Fed. The Fed has the responsibility of keeping the economy controlled from fluctuations, and it has to control the money supply of the economy through its monetary policies . The controlling of the money supply is one of the primary responsibilities of the Fed. Option (c): Increasing the interest rates: When the Fed increases the interest rates on the funds held by the commercial banks, the commercial banks will have more incentive to hold up the funds and reduce the loans; this reduces the money supply in the economy. Thus, option ‘ c’ is correct. Option (a): Purchasing of bonds: The purchase of government bonds from the public generates new currency in the economy. Likewise, the sale of government bonds to the public retires the excess money from the economy, which helps to reduce the supply of money in the economy. Thus, the purchasing of bonds increases the money supply in the economy...

How the Fed decreases the money supply.

Principles of Economics (MindTap Course List)

8th Edition

ISBN: 9781305585126

Author: N. Gregory Mankiw

Publisher: Cengage Learning

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Question

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.

Chapter 29, Problem 5CQQ

To determine