The correct answer is:
b) sell bonds.
When the Federal Reserve (the Fed) wishes to increase the money supply, it can sell bonds. By selling bonds, the Fed injects money into the economy. This action increases the reserves of banks, allowing them to lend more money to businesses and individuals. As a result, the overall money supply in the economy increases, promoting economic growth and liquidity.
Selling bonds is a monetary policy tool used by the Fed to influence the money supply. It is one of the ways the Fed can implement contractionary monetary policy to stimulate economic activity. By selling bonds, the Fed reduces the amount of money held by the public, leading to an increase in the money supply available for lending and spending.
Therefore, when the Fed wants to boost the money supply, selling bonds is a viable strategy to achieve this goal.
