Monetary policy tools include:
A)Income taxes and the discount rate.
B)Open market operations and government spending.
C)The reserve ratio and the discount rate.

Question

Quizplus · Accepted Answer

The reserve ratio and the discount rate are both tools used by central banks to influence the money supply in an economy. The reserve ratio is the percentage of deposits that banks must hold in reserve, while the discount rate is the interest rate at which banks can borrow money from the central bank. By adjusting these rates, a central bank can regulate the availability of credit in the economy and, as a result, influence key macroeconomic variables such as inflation and employment. Income taxes and government spending, on the other hand, are tools used by fiscal policy, which operates separately from monetary policy. Open market operations involve the central bank buying or selling government securities on the open market with the aim of influencing the money supply, making it another tool of monetary policy.

Monetary Policy Tools Include