Once a ________ is chosen, the main tool the Federal Reserve uses to change the money supply is ________.
A) federal funds rate; open-market operations
B) federal funds rate; changing the discount rate
C) tax rate; changing the exchange rate
D) number of dollars in circulation; changing the reserve rate
E) discount rate; borrowing money from the federal government

Question

Quizplus · Accepted Answer

The Federal Reserve's main tool for changing the money supply is through open-market operations, which involves buying or selling government securities in the open market. The federal funds rate is the rate at which banks lend to each other overnight, and it is a key policy tool used by the Federal Reserve to influence interest rates and the broader economy. By adjusting the federal funds rate, the Fed can indirectly affect the money supply through banks' willingness to lend and borrow funds. However, the direct tool for changing the money supply is open-market operations.

Once a ________ Is Chosen, the Main Tool the Federal