ECONOMICS
FEDERAL RESERVE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The discount rate.
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The reserve requirements.
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Open market operations.
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The 30-year home-mortgage interest rate.
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Detailed explanation-1: -The primary tools that the Fed uses are interest rate setting and open market operations (OMO). The Fed can also change the mandated reserves requirements for commercial banks or rescue failing banks as lender of last resort, among other less common tools.
Detailed explanation-2: -Traditionally, the Fed’s most frequently used monetary policy tool was open market operations. This consisted of buying and selling U.S. government securities on the open market, with the aim of aligning the federal funds rate with a publicly announced target set by the FOMC.
Detailed explanation-3: -Open-market operations are the Fed’s most used monetary policy tool.
Detailed explanation-4: -Influencing interest rates, printing money, and setting bank reserve requirements are all tools central banks use to control the money supply. Other tactics central banks use include open market operations and quantitative easing, which involve selling or buying up government bonds and securities.