Which of the following is a tool that is used by the Fed to control the quantity of money?
A) government expenditure multiplier
B) excess reserves
C) open market operations
D) real interest rate

Question

Quizplus · Accepted Answer

Open market operations involve the buying and selling of government securities by the Federal Reserve. By buying securities, the Fed injects money into the economy, increasing the quantity of money. By selling securities, the Fed removes money from the economy, decreasing the quantity of money. Therefore, it is a tool used by the Fed to control the quantity of money.

A) The government expenditure multiplier is a measure of how much economic activity is generated by each unit of government spending. While government expenditure can influence the quantity of money in the economy indirectly, it is not a tool that the Fed uses directly to control the quantity of money.

B) Excess reserves refer to the amount of money that banks hold in excess of what is required by the Fed. While the level of excess reserves held by banks can influence the quantity of money in the economy, the Fed does not directly control the level of excess reserves.

D) The real interest rate is the nominal interest rate adjusted for inflation. While the interest rate can influence the supply and demand for money, it is not a tool that the Fed uses directly to control the quantity of money.

Which of the Following Is a Tool That Is Used