Using the traditional tools of monetary policy the Federal Reserve has direct control over _____ and through that an ability to impact ____.

Question

Quizplus · Accepted Answer

The traditional tools of monetary policy, such as open market operations, reserve requirements, and the discount rate, allow the Federal Reserve to directly control the monetary base, which is the amount of money in circulation. By influencing the monetary base, the Fed can impact short term interest rates, such as the federal funds rate. Controlling short term interest rates can then have an impact on broader economic variables, such as inflation and consumption. Therefore, choice A is the best option. The other options either do not reflect the Fed's direct control through monetary policy or are indirect effects of the Fed's actions.

Using the Traditional Tools of Monetary Policy the Federal Reserve