ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Reserve requirement ratio
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Discount rate
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Open market operations
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Consensus
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Detailed explanation-1: -The Fed uses open market operations to manipulate interest rates, starting with the federal funds rate used in interbank loans. Buying securities adds money to the system, lowers rates, makes loans easier to obtain, and increases economic activity.
Detailed explanation-2: -The FOMC sets a target federal funds rate eight times a year, based on prevailing economic conditions. The federal funds rate can influence short-term rates on consumer loans and credit cards. Investors keep an eye out on the federal funds rate as well because it has an impact on the stock market.
Detailed explanation-3: -Open market operations (OMOs)–the purchase and sale of securities in the open market by a central bank–are a key tool used by the Federal Reserve in the implementation of monetary policy. The short-term objective for open market operations is specified by the Federal Open Market Committee (FOMC).
Detailed explanation-4: -About the FOMC The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy. The Federal Reserve controls the three tools of monetary policy–open market operations, the discount rate, and reserve requirements.