Identify the tool that the Fed most frequently uses to expand and contract the money supply in the economy.
A)Open market operations
B)Discount rate changes
C)Reserve requirement changes
D)Interest rate charges

Question

Quizplus · Accepted Answer

Open market operations involve the buying and selling of government securities by the Fed, which influences the reserves of banks and the money supply in the economy. By buying securities, the Fed injects money into the economy, which can lead to expansion, and by selling securities, it withdraws money, which can lead to contraction. The Fed uses this tool most frequently because it is flexible and can be implemented quickly and easily. While discount rate changes and reserve requirement changes are also used to influence the money supply, they are less frequently used by the Fed. Interest rate charges do not directly impact the money supply and are not used as a tool for monetary policy.

Identify the Tool That the Fed Most Frequently Uses to Expand