Question

One of the​ Fed's main policy tools is​ ______.

A.the last resort​ loan, which means that if a bank is short of​ reserves, it can borrow from the Fed
B.the discount​ ratio, which is the minimum percentage of deposits that depository institutions are required to hold as reserves
C.the open market​ sale, which is a means of increasing bank reserves and increasing stability in the banking system
D.the open market​ purchase, which is the purchase of money from the government

Answer 1

The Fed's main policy tool is open market operations, particularly open market purchases, which involve buying government bonds to adjust the money supply and interest rates for economic stability.

Step-by-step explanation:

One of the Fed's main policy tools is open market operations. This involves the central bank selling or buying Treasury bonds to influence the quantity of money and the level of interest rates. Among the options provided, the most accurate description is open market purchase, which refers to the buying of government bonds from banks, consequently increasing bank reserves and generally leading to an increase in the money supply and a decrease in interest rates, contributing to greater economic stability.