AP Macroeconomics Question 276: Answer and Explanation

Test Information

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Question: 276

7. Which of the following lists contains only Fed actions that will increase the money supply?

  • A. Raise reserve requirements; lower the discount rate; sell bonds.
  • B. Raise reserve requirements; lower the discount rate; buy bonds.
  • C. Raise reserve requirements; raise the discount rate; sell bonds.
  • D. Lower reserve requirements; lower the discount rate; sell bonds.
  • E. Lower reserve requirements; lower the discount rate; buy bonds.

Correct Answer: E

Explanation:

(E) The three primary tools at the Fed's disposal for increasing the money supply are lowering reserve requirements, lowering the discount rate, and buying bonds on the open market.