Economic-Reserve ratio question-thank you?

Question

A decrease in the required reserve ratio __________ the money supply; an open market purchase __________ the money supply.

decreases; decreases

decreases; increases

increases; increases

increases; decreases

Answer 1

Hi there. The correct answer is increases; decreases.

Answer 2

c) increases; increases

If FED purchase something on open-market - it purchases bonds (not money) and pays money in exchange, thus money-supply increases. If FED sells, it means that is sells bonds in exchange for money, thus money-supply decreases.