The Federal Reserve System exercises its most direct control of the money supply:
A)by the issuance of Federal Reserve notes
B)through reserve requirements
C)by setting the discount rates on loans to depository institutions
D)through open market operations

Question

Quizplus · Accepted Answer

Open market operations involve the buying and selling of government securities, which directly affects the amount of money in circulation and influences interest rates. This is the Federal Reserve's most powerful tool for controlling the money supply. While the issuance of Federal Reserve notes and setting reserve requirements also have an impact on the supply of money, their effects are not as immediate or direct as open market operations. The discount rate is the interest rate charged by the Fed on loans to depository institutions, which can influence the lending behavior of banks but does not directly control the money supply.

The Federal Reserve System Exercises Its Most Direct Control of the Money