Explanations

To increase the amount of money available to member banks and stimulate economic growth, the Federal Reserve employs expansionary monetary policies.

• Lowering the minimum reserves required by its member banks is an expansionary action. When reserve requirements are lower, banks are permitted to lend out a much higher percentage of their deposited funds. This increases the amount of funds in circulation for the banking system, which can then be loaned out to consumers and businesses.

• Raising the discount rate (A) is considered a contractionary action, as it discourages banks and borrowers from lending and spending more due to the higher cost of borrowing.

• Raising the minimum reserves required by its member banks (C) is also a contractionary action. It means banks must set aside more money, resulting in fewer dollars available to be loaned to individual and business borrowers.

• Selling government bonds (D) is an open market operation that decreases the amount of capital available for banks, thereby contracting or slowing the overall economy byreducing the money supply. To increase the money supply, the Fed would purchase securities. Therefore, lowering the minimum reserve requirements is the correct action to increase money availability in a tight money market.

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