Question

Select all that apply

Which of the following are tools of monetary control that the Fed can use to alter the reserves of commercial banks?
A. Reserve ratio
B. Taxation
C. Open-market operations
D. Government spending
E. Discount rate
F. Interest on reserves

Answer 1

The Federal Reserve can use the reserve ratio, open-market operations, the discount rate, and the interest on reserves as tools to control the monetary policy and alter the reserves of commercial banks.

Step-by-step explanation:

The tools of monetary control that the Federal Reserve (the Fed) can use to alter the reserves of commercial banks include:

• Reserve ratio (A): This determines the level of reserves a bank must hold.
• Open-market operations (C): This involves buying and selling government bonds to influence bank reserves and interest rates.
• Discount rate (E): The rate the Fed charges for loans to commercial banks.
• Interest on reserves (F): The interest paid on the reserves that banks hold at the Fed.

Tools such as taxation and government spending are fiscal policy instruments used by the government, not the Fed, so they do not apply here.