When the Fed uses open market operations,it employs the so-called ________,or the rate at which banks lend money to each other overnight,as its benchmark.
A)discount rate
B)reserve requirements
C)federal funds rate
D)municipal bonds

Question

Quizplus · Accepted Answer

The benchmark that the Fed uses when employing open market operations is the federal funds rate. This rate is the rate at which banks lend money to one another overnight to meet their reserve requirements. The Fed uses this rate as a tool to influence the overall level of interest rates in the economy. The discount rate is the rate at which banks can borrow money directly from the Fed, reserve requirements are the percentage of deposits that banks must hold in reserve, and municipal bonds are debt securities issued by municipalities or other local governments.

When the Fed Uses Open Market Operations,it Employs the So-Called