What does the Fed do to expand aggregate demand? Choose two

Reducing the quantity of reserves would actually contract the money supply, as banks would have less capacity to lend. This action would likely lead to higher interest rates, which would discourage borrowing and spending, thereby reducing aggregate demand rather than expanding it.

Increasing the foreign exchange rate typically makes domestic goods more expensive for foreign buyers, potentially reducing exports. This measure does not directly influence aggregate demand domestically; instead, it could have a negative impact by lowering demand for goods and services produced within the country.

Raising mortgage rates would increase the cost of borrowing for home purchases, likely leading to a decrease in housing demand and consumer spending. Higher mortgage rates can slow down the economy by discouraging investments in real estate and related sectors, thus negatively affecting aggregate demand.

Decreasing the money supply is a contractionary policy that would lead to higher interest rates and reduced lending capacity for banks. This would diminish consumer and business spending, ultimately leading to a decline in aggregate demand, contrary to the goal of expansion.