Question

Which of the following are policy instruments available to the Fed as it tries to achieve its macroeconomic goals? I. government expenditures on goods and services and taxes II. the government budget deficit or surplus III. changes in the federal funds rate

Answer 1

III. changes in the federal funds rate

Step-by-step explanation:

Changes in the federal funds rate are in fact the most common policy instrument used by the Fed when it tries to achieve its macroeconomic goals.

The federal funds rate is the general interest rate of the economy, that is used as a reference for all other interest rates, for example, the interest rates that commercial banks charge on credit card purchases.

The Fed changes the federal funds rate indirectly, through the use of what is know as open market operations. In this operations, the fed tries to raise the federal funds rate by selling government bonds, and tries to lower it by buying government bonds.