Which monetary policy tool is used most often by the Federal Reserve?
A. printing additional money
B. buying or selling government securities and bonds
C. raising or lowering bank reserve requirements
D. adjusting the money multiplier formula
E. adjusting the discount rate
I believe the answer is B
1 answer
B is correct. The Fed constantly buys and sells U.S. government securities in the financial markets, which in turn influences the level of reserves in the banking system. These decisions also affect the volume and the price of credit (interest rates). The term open market means that the Fed doesn't independently decide which securities dealers it will do business with on a particular day. Rather, the choice emerges from an open market where the various primary securities dealers compete. Open market operations are the most frequently employed tool of monetary policy.
1 answer