Which of the following is a potential monetary policy instrument for the Fed?
A) federal funds rate
B) government budget deficit
C) income tax rates
D) profit rates

Question

Quizplus · Accepted Answer

The federal funds rate is a monetary policy instrument used by the Federal Reserve (the Fed) to influence the economy. It is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. Adjusting this rate is a direct way for the Fed to control the supply of money in the economy, which in turn affects economic activity. Government budget deficits, income tax rates, and profit rates are not directly controlled by the Fed as they are related to fiscal policy and business operations, respectively.

Which of the Following Is a Potential Monetary Policy Instrument