Question

If the Federal Reserve decreased the money supply, what would the effects be? Check all that apply.

decreased interest rates
increased interest rates
decreased borrowing
increased borrowing
decreased investing
increased investing

Answer 1

Answer: increased interest rates, decreased borrowing, and decreased investing. Conversely, if the Fed wants to decrease the money supply, it sells bonds from its account, thus taking in cash and removing money from the economic system.

Explanation: Conversely, if the Federal reserve wants to decrease the money supply, it sells bonds from its account, thus taking in cash and removing money from the economic system.