ECONOMICS
MONETARY POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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buying government securities
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selling government securities
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raising the reserve ratio
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raising the discount rate
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Detailed explanation-1: -To do this, the FOMC could raise its target range for the federal funds rate (FFR) and increase the administered rates-interest on reserve balances (IORB) rate, overnight reverse repurchase agreement (ON RRP) offering rate, and discount rate-accordingly.
Detailed explanation-2: -The correct answer is a. When the Fed wants to increase the money supply, it implements an expansionary monetary policy. This type of policy includes the decrease of the discount rate, the purchase of government securities, and the reduction of the reserve requirement ratio.
Detailed explanation-3: -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-4: -To increase the (growth of the) money supply, the Fed could either buy bonds, lower the reserve requirement ratio, or lower the discount rate. To decrease the (growth of the) money supply, the Fed could either sell bonds, raise the reserve requirement ratio, or raise the discount rate.