The Fed uses three policy tools to manipulate the money supply: ________,which affect reserves and the monetary base; changes in ________,which affect the monetary base; and changes in ________,which affect the money multiplier.
A)open market operations; borrowed reserves; margin requirements
B)open market operations; borrowed reserves; reserve requirements
C)borrowed reserves; open market operations; margin requirements
D)borrowed reserves; open market operations; reserve requirements

Question

Quizplus · Accepted Answer

The Fed uses open market operations to buy or sell government securities, which affect reserves and the monetary base. Changes in borrowed reserves (discount rate) also affect reserves and the monetary base. Changes in reserve requirements affect the money multiplier. Therefore, the correct policy tools and their effects are captured in choice B.

The Fed Uses Three Policy Tools to Manipulate the Money