ECONOMICS
FEDERAL RESERVE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Changing the discount, or Overnight, rate.
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Selling T bills, T notes, and T bonds
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Buying T bills, T notes, and T bonds
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Dumping 10 million dollars into circulation
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Detailed explanation-1: -The first tool used by the Fed, as well as central banks around the world, is the manipulation of short-term interest rates. Put simply, this practice involves raising/lowering interest rates to slow/spur economic activity and control inflation.
Detailed explanation-2: -The primary tool the Federal Reserve uses to conduct monetary policy is the federal funds rate-the rate that banks pay for overnight borrowing in the federal funds market.
Detailed explanation-3: -The Fed’s mandate The Fed uses interest rates as either a gas pedal or a brake on the economy when needed. The Fed’s main tool it can use to battle inflation is interest rates.
Detailed explanation-4: -The Fed uses three primary tools in managing the money supply and pursuing stable economic growth. The tools are (1) reserve requirements, (2) the discount rate, and (3) open market operations. Each of these impacts the money supply in different ways and can be used to contract or expand the economy.