The Fed's mostly used tool for changing the size of the money supply is

Question

Quizplus · Accepted Answer

Open market operations involve the buying and selling of government securities in the open market. When the Fed buys securities, it injects money into the economy and increases the money supply, while selling securities does the opposite. This is the most frequently used tool by the Fed to adjust the money supply. Choice A is incorrect as changing the discount rate influences the cost of borrowing, but does not directly affect the money supply. Choice B is also incorrect as changing reserve requirements can alter the amount of money banks can lend out, but it is not as commonly used by the Fed. Choice D is incorrect as changing the government budget deficit is a fiscal policy tool that impacts the economy through government spending and taxation, and is not a monetary policy tool used by the Fed.

The Fed's Mostly Used Tool for Changing the Size of the Money