The least used monetary policy instrument used by the Fed is
A)open market operations
B)changing the discount rate
C)changing the reserve requirement
D)none of the above

Question

Quizplus · Accepted Answer

The reserve requirement is the least used monetary policy instrument by the Fed. The reserve requirement is the percentage of deposits that banks must hold in reserve and cannot lend out. Changing the reserve requirement can have a significant impact on the money supply but the Fed rarely uses this tool as it can be difficult to predict its effects and can create instability in the banking system. Open market operations, which involve buying or selling government securities in the open market to influence interest rates and the money supply, and changing the discount rate, which is the interest rate at which banks can borrow from the Fed, are more commonly used by the Fed.

The Least Used Monetary Policy Instrument Used by the Fed