8
AssignmentMultiple Choice

Financial Institutions and Banking

Question 8 • FL-2106020-M/J Civics Advanced B

Why does the Federal Reserve decrease the money supply?

Answer
A
to grow the economy and create jobs
B
to reduce inflation and maintain stable prices
C
to lower interest rates and promote borrowing
D
to keep bank from losing money and failing

Explanation

The Federal Reserve decreases the money supply when it wants to slow spending and borrowing in the economy. With less money circulating, demand tends to cool, which can help reduce inflation and keep prices more stable. Lowering the money supply usually puts upward pressure on interest rates, so choice C describes the opposite goal.

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