Final answer:
The statement is False. The Federal Reserve's tools to manage monetary policy are open market operations, reserve requirements, and the discount rate; the prime rate is not a tool of the Fed.
Step-by-step explanation:
The statement, True or False: The three tools used by the Federal Reserve to manage monetary policy are reserve requirements, the prime rate, and the discount rate, is False. The three traditional tools used by the Federal Reserve to conduct monetary policy are open market operations, reserve requirements, and the discount rate. The prime rate is not a tool used by the Federal Reserve; it is a bank lending rate that usually follows changes to the federal funds rate. The most frequently utilized tool among these is open market operations, which involve buying and selling government securities to regulate the money supply.
Open market operations are conducted by the Federal Open Market Committee and influence the federal funds rate, the rate at which depository institutions lend to each other overnight. The Board of Governors of the Federal Reserve System controls the discount rate and reserve requirements. By using these tools, the Federal Reserve affects the nation's money supply and the demand and supply of balances held at the Federal Reserve Banks.