Describe the three basic tools used by the Fed to change the money supply. Which of these tools is most relied on in practice? Least relied on? Why?
The Fed can use open market operations, change the required reserve ratio, or change the discount rate to change the money supply. In practice, the Fed most often relies on open market operations because it is the most flexible tool. It allows for the greatest fine-tuning of the money supply. The required reserve ratio is the tool least used in practice because it is potentially so powerful. Changing required reserves could change the money supply too much in one direction or another. Its use could be much like using a sledgehammer to pound in a finishing nail.
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Which of the following situation would make transaction costs too high to negotiate and therefore the Coase Theorem would not apply?
A. Only a few people are bothered by the pollution in the area B. Many people are bothered by pollution in the area C. Many firms are in the area with different levels of pollution D. One firm is the cause of the pollution
Refer to the above figure. If the relevant aggregate demand curve is AD1, then the economy is experiencing
A) full employment. B) an inflationary ga
If the CPI decreases from one year to the next, then the inflation rate is
A) negative. B) 0. C) below 100. D) above 100. E) positive.
Suppose firms in Hong Kong can produce 40,000 plastic dolls or 80,000 squirt guns each week, while firms in Taiwan can produce 40,000 plastic dolls or 40,000 squirt guns each week. Therefore, when we compare the two groups:
A) the costs of production are the same in each country. B) the people in Hong Kong are the most efficient producers of both plastic dolls and squirt guns. C) the people in Taiwan produce plastic dolls with the same efficiency as Hong Kong. D) none of the above are true.