Question

The Federal Reserve's primary tool for changing the money supply isthe discount rate . In order to increase the number of dollars in the U.S. economy (the money supply), the Federal Reserve will government bonds.

Answer 1

The Federal Reserve's primary tool for changing the money supply is open market operations. In order to increase the number of dollars in the U.S. economy (the money supply), the Federal Reserve will buy Correct government bonds.

Step-by-step explanation:

Open market operations are the Fed's primary tool for controlling the money supply. Open market operations involve buying and selling U.S. government bonds. To increase the money supply, the Fed creates dollars with which to purchase government bonds from the public. After the purchase, the Fed has bonds and the public has new dollars—an increase in the money supply. To reduce the money supply, the Fed sells U.S. government bonds to the public. After the sale, the public has bonds and the Fed has taken dollars out of circulation, thereby reducing the money supply.

Answer 2

No, it's not the discount rate but the Open Market Operations.

Step-by-step explanation:

The Federal Reserve has three main instruments for influencing money supply: open market operations, the discount rate and commercial banks' reserve requirements.

1. Open market operations has to do with the buying and selling of government bonds, treasury bills, financial instruments and securities. This is the most frequently used tool by the Fed because if it wants to increase supply of money, it will simply buy bonds and pay money to bond-holders, hence increasing the amount of money in circulation and vice versa.

2. The discount rate is the second most frequently used. It is simply the interest rate which the Fed charges to commercial banks on the short run. This changes from time to time .

3.Reserve requirements are the amounts of deposits that commercial banks must keep and not pay out into circulation. It remains as a deposit with the Federal Reserve Bank.