Which of the following is considered to be the Fed's main policy tool?
A)the rediscount rate
B)the reserve ratio
C)raising taxes
D)open market operations

Question

Quizplus · Accepted Answer

Open market operations is considered to be the Fed's main policy tool. It refers to the buying and selling of government securities in order to control the money supply and interest rates. The Fed can increase the money supply by purchasing government securities, which puts more cash into circulation and lowers interest rates. On the other hand, the Fed can decrease the money supply by selling government securities, which takes cash out of circulation and raises interest rates. The rediscount rate and reserve ratio are also policy tools used by the Fed, but they are not considered to be the main tool. Raising taxes is a fiscal policy tool and not under the control of the Fed.

Which of the Following Is Considered to Be the Fed's