ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -By contrast, if the Fed sells or lends treasury securities to banks, the payment it receives in exchange will reduce the money supply.

Detailed explanation-2: -The correct answer is D. If the discount rate decreases, the commercial banks borrow more money from the Fed which leads to an increase in reserves and thus the money supply. Any change in the tax rates is a type of fiscal policy and is thus not able to have any effect on the money supply.

Detailed explanation-3: -Which of the following is NOT one of the Fed’s monetary policy tools? The answer is c) changing the coupon rate. The discount rate, the required reserve ratio is determined by the Fed and the open market operation is also conducted by FED.

Detailed explanation-4: -The Fed has traditionally used three tools to conduct monetary policy: reserve requirements, the discount rate, and open market operations.