ECONOMICS (CBSE/UGC NET)

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ECONOMICS

MONETARY POLICY

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
____ are the most important monetary policy tool because they are the primary determinant of changes in the ____, the main source of fluctuations in the money supply.
A
Open market operations; money multiplier
B
Open market operations; monetary base
C
Changes in reserve requirements; money multiplier
D
Changes in reserve requirements; monetary base
Explanation: 

Detailed explanation-1: -Interest on reserves remains the primary tool for influencing the federal funds rate, other market interest rates in turn, and ultimately consumer and business borrowing and spending.

Detailed explanation-2: -Open market operations (“OMOs”) are the central bank’s primary tool of monetary policy. If the central bank wants interest rates to be lower, it buys bonds.

Detailed explanation-3: -The most commonly used tool of monetary policy in the U.S. is open market operations. Open market operations take place when the central bank sells or buys U.S. Treasury bonds in order to influence the quantity of bank reserves and the level of interest rates.

Detailed explanation-4: -The primary tools that the Fed uses are interest rate setting and open market operations (OMO).

There is 1 question to complete.
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