In this circular flow example the money supply is reduced as the fed $20 billion of treasury bonds and bills from/to the banking system..

Deduct/subtract

Step-by-step explanation:

Federal Reserve board uses different methods to increase or decrease the currency in circulation. This methods are known as Monetary policy. The Central bank, at its discretion, can print more currency to increase the flow of currency in circulation

The Federal Reserve Board, which is the governing body that manages the Federal Reserve System, oversees all domestic monetary policy. The Fed"s job is to increase and decrease paper currency in circulation. This effort is to curb inflation and hyperinflation, stabilize the economy and create room for ease of doing business with the international community

The Fed can increase the money supply by lowering the reserve requirements for banks, which allows them to lend more money.

Also, by raising the banks' reserve requirements, the Fed can decrease the size of the money supply.

The Central bank modify short-term interest rates by lowering or increasing the discount rate that banks pay on short-term loans from the Fed.

Modifying Reserve Requirements : they can moderate the amount of money banks can hold.

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