In 2008, the Fed acquired a fourth tool of monetary policy, which is the
A) open-market operation.
B) discount rate.
C) paying of interest on excess reserves held at Fed banks.
D) reserve ratio.

Question

Quizplus · Accepted Answer

In 2008, the Fed began paying interest on excess reserves held at Fed banks as a way to increase the effectiveness of monetary policy. This tool helps the Fed control the federal funds rate by providing banks with an incentive to hold excess reserves instead of lending them out, thereby reducing the supply of money in the economy.

In 2008, the Fed Acquired a Fourth Tool of Monetary