Which of the following policies could the Fed use to lower the interest rate?
A) a tax cut
B) selling government securities
C) raising the discount rate
D) reducing the required reserve ratio

Question

Quizplus · Accepted Answer

When the Fed reduces the required reserve ratio, it increases the amount of money that banks have available to lend out, which in turn lowers the interest rate. A tax cut and raising the discount rate are tools of fiscal and monetary policy, respectively, rather than actions the Fed can take directly. Selling government securities can actually raise interest rates by reducing the amount of money available for lending.

Which of the Following Policies Could the Fed Use to Lower