Explain the Fed's three tools of monetary policy and how each is used to change the money supply. Does each tool affect the monetary base or the money multiplier?
What will be an ideal response?
The three tools are open market operations, the purchase and sale of government securities; discount policy, controlling the price and quantity of discount loans to banks; and reserve requirements, setting the percentage of deposits that banks must hold in reserve. Open market operations and the discount rate affect the monetary base, and reserve requirements affect the money multiplier.
You might also like to view...
In an open economy firms sell goods and services to:
A) households, government, and foreigners. B) just households. C) just the government. D) none of the above.
The Austrian school of economists stressed on the efficiency of the markets on the pretext that:
a. resources could be efficiently allocated through price system and free markets. b. governmental intervention was necessary for the efficient allocation of resources. c. the price charged under the free market system was always lower than under central planning. d. the market had never failed earlier. e. the market did not suffer from imperfect information.
When restrictions alter the pattern of international trade, the _____ benefit and the _____ suffer(s)
a. domestic consumers; domestic producers b. domestic consumers; government c. domestic producers; domestic consumers d. foreign producers; domestic producers e. foreign producers; domestic consumers
A profit-maximizing firm will never increase production if doing so causes total revenue to decrease
a. True b. False