The tools of monetary policy include changes in:
A) Incentives to save.
B) Tax laws.
C) The reserve requirement.
D) Minimum wage laws.

Question

Quizplus · Accepted Answer

The reserve requirement is a tool used by central banks to control the amount of money that commercial banks can lend. By increasing or decreasing the reserve requirement, the central bank can influence the amount of money in circulation and thereby affect interest rates, inflation, and economic growth.

None of the other choices (incentives to save, tax laws, and minimum wage laws) are direct tools of monetary policy. Incentives to save and tax laws may affect consumer behavior and investment decisions, but they are more closely tied to fiscal policy. Minimum wage laws impact the labor market and income distribution, but they are not typically used as a tool of monetary policy.

The Tools of Monetary Policy Include Changes In