Which tool of monetary policy is most important? Why?
What will be an ideal response?
Open-market operations are the most important tool of monetary policy. Changes in the discount rate are less effective because bank reserves are relatively small and require action by commercial banks. Reserve requirements are rarely changed. Reserves do not earn interest so an increase in reserve requirements would be costly to banks, making this policy move less attractive. The term auction facility was successfully introduced in 2007 but its use is reserved for times of crisis. Open-market operations are used most often because they are very flexible and have an immediate effect on bank reserves.
You might also like to view...
Successful collusion requires all of the following except
a. a monopoly market with strong barriers to entry b. all firms cooperate, none cheat c. all firms belong to the same industry d. collusion will be more profitable than non-collusion e. the government does not interfere
If a currency decreases in value in response to market forces, this process is known as
a. devaluation. b. depreciation. c. deflation. d. degeneration.
In an effort to maximize profits, oligopolists could participate in all of the following but
A. Game theory. B. Price-fixing. C. Cartels. D. Price leadership.
Suppose a price floor is imposed on eggs above their equilibrium price. The likely result will be:
A. a higher equilibrium price for eggs as the supply curve for eggs shifts left. B. a lower equilibrium price for eggs as the demand curve for eggs shifts left. C. a decrease in the quantity of eggs demanded. D. an increase in the quantity of eggs demanded.