GENERAL KNOWLEDGE

Detailed explanation-1: -The primary tools that central banks use to expand monetary policy include lowering the discount rate, increasing the purchase of government securities, and reducing the reserve requirement. Federal Reserve History.

Detailed explanation-2: -The FOMC changes monetary policy primarily by raising or lowering its target for the federal funds rate, the interest rate for overnight borrowing between banks. Lowering the target rate represents an “easing” of monetary policy, while increasing the target rate is a “tightening” of policy.

Detailed explanation-3: -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. 24.

Detailed explanation-4: -Ans: c. When the Federal Reserve purchases government bonds on the open market, bank reserves will increase and more money will be available for loans. So, the money supply will increase. When the money supply increases, the equilibrium interest rate will be lowered.

Detailed explanation-5: -The Fed uses three primary tools in managing the money supply and pursuing stable economic growth. The tools are (1) reserve requirements, (2) the discount rate, and (3) open market operations.