Which of the following policies can the Fed follow to increase the money supply?

a. âReduce the quantity of funds available through the Term Auction Facility

b. âSell government bonds

c. âIncrease reserve requirements for banks

d. âReduce the interest rate on reserves

Answer: Option D

Explanation: The increase or decrease in the supply of money can be constituted by applying either the monetary policies or fiscal policies. Increase in money supply is constituted usually in case of recession.

Under such a situation to boost the demand in economy govt. tries to increase the in hand money of individual.

For performing increase in supply govt. usually use monetary policy methods such as decease in interest rates as such will work as an incentive for individuals to borrow more resulting in more investment and finally in increase demand.