Question

Which of the following is NOT a way that the Fed controls the money supply?

A-Changing federal income tax rates
B-changing the reserve requirement
C-changing bank-borrowing interest rates
D-buying/selling government bonds

Answer 1

A-Changing federal income tax rates

Step-by-step explanation:

The Fed controls the money supply using monetary policy tools. Monetary policy is either expansionary or contractionary. The Fed chooses which policies to apply depending on the prevailing economic conditions.

Monetary policy tools available to the Fed include reserve requirements, interest on reserves, open-market operations, discount rates, and the federal fund rate.

The Fed does not set the federal income tax rates. Taxes are part of the fiscal policy applied by the executive arm of government. The government alters taxation to achieve desired macroeconomics objectives.