In addition to open market operations and the required reserve ratio, another tool of monetary policy available to the Fed is

Question

Quizplus · Accepted Answer

The difference between the discount rate (the interest rate at which banks can borrow directly from the Fed) and the federal funds rate (the interest rate at which banks lend to each other) is another tool of monetary policy known as the discount rate. By raising or lowering the discount rate, the Fed can influence the cost of borrowing for banks and affect the overall money supply. So, option D is the correct answer. Fiscal policy (option A) involves changes in government spending and taxation, which is the responsibility of the government, not the Fed. Similarly, tax rates and progressivity (option B) are also not the direct tools of monetary policy, but they are under the government's control through fiscal policy. Finally, government spending and transfer payments (option C) are also part of fiscal policy, not monetary policy.

In Addition to Open Market Operations and the Required Reserve