Asked by Yesenia Lazarte on May 21, 2024
Verified
Which of the following is the Federal Reserve's most important tool of monetary control?
A) Discounting operations
B) Margin requirements
C) Reserve requirement changes
D) Open market operations
Monetary Control
Monetary Control involves the regulation of the money supply and interest rates by central banks to manage economic stability and growth.
Open Market Operations
The buying and selling of government securities by a central bank in order to control the money supply and influence interest rates.
- Recognize the instruments the Federal Reserve employs to execute monetary policy.
- Understand the functional dynamics of open market operations and their immediate influence on the economic landscape.
Verified Answer
AT
Angela Talton MBA, MHA, RHIA, CDIP, CCS, CPC, COCMay 22, 2024
Final Answer :
D
Explanation :
Open market operations refer to the buying and selling of government securities by the Federal Reserve in the open market. By buying securities, the Fed increases the amount of reserves held by banks, which in turn increases lending and money supply. By selling securities, the Fed decreases reserves and slows down lending and money supply. This is the Fed's most important tool of monetary control because it allows them to directly influence the money supply in the economy.
Learning Objectives
- Recognize the instruments the Federal Reserve employs to execute monetary policy.
- Understand the functional dynamics of open market operations and their immediate influence on the economic landscape.