The primary tool of monetary policy is ________.
A) the Fed's control of bank loans
B) the Fed's control of the inflation rate
C) the Fed's control of banks' assets
D) the Fed's control of the federal funds rate

Question

Quizplus · Accepted Answer

The primary tool of monetary policy is the Fed's control of the federal funds rate, which is the interest rate at which banks lend and borrow funds from each other overnight. By increasing or decreasing the federal funds rate, the Fed can either encourage or discourage borrowing and spending and thus influence economic activity and inflation. The other answer choices are not accurate descriptions of the primary tool of monetary policy.

The Primary Tool of Monetary Policy Is ________