Which of the following tools of monetary policy is ﬂexible and able to affect bank reserves quickly and by relatively speciﬁc amounts?
A) the discount rate
B) the reserve ratio
C) open-market operations
D) the federal funds rate

Question

Quizplus · Accepted Answer

Open-market operations involve the buying and selling of government securities by the Federal Reserve to influence the supply of money and bank reserves. This tool is flexible and allows the Fed to quickly and precisely adjust the level of bank reserves in the financial system. The discount rate is the interest rate charged by the Fed when it lends money to banks, and the reserve ratio is the percentage of deposits that banks are required to hold in reserve. While both of these tools can also impact bank reserves, they are less flexible and less precise than open-market operations. The federal funds rate is the interest rate that banks charge each other for overnight loans and is not a tool used directly by the Fed to affect bank reserves.

Which of the Following Tools of Monetary Policy Is ﬂExible