The Fed is most likely to pursue

Question

Quizplus · Accepted Answer

The Federal Reserve is most likely to pursue the use of open market operations as the primary mechanism to change reserves. This is because it is a flexible and precise tool that allows the Fed to buy or sell government securities in the open market to influence the level of reserves in the banking system. It also allows the Fed to target a specific interest rate, such as the federal funds rate, which is the rate at which banks lend to each other overnight. Frequent adjustment of the reserve requirement and numerous increases in the discount rate are less likely to be used because they are more rigid and have a broader impact on the money supply.

The Fed Is Most Likely to Pursue