The Fed's use of the interest rate it pays banks on their excess reserves
A) is a tool the Fed has used effectively over the past several decades to control the money supply.
B) is a tool that can be used to reduce the supply of money, but it cannot be used to expand it.
C) is a monetary tool that the Fed introduced in 2008.
D) is a tool that could be used to expand the money supply, but it could not be used to reduce it.

Question

The Fed's use of the interest rate it pays banks on their excess reserves
A) is a tool the Fed has used effectively over the past several decades to control the money supply.
B) is a tool that can be used to reduce the supply of money, but it cannot be used to expand it.
C) is a monetary tool that the Fed introduced in 2008.
D) is a tool that  could be used to expand the money supply, but it could not be used to reduce it.

Quizplus · Accepted Answer

The Fed introduced the interest rate on excess reserves as a monetary policy tool in 2008 to help control the money supply and influence bank lending.

The Fed's Use of the Interest Rate It Pays Banks