In monetary policy, who controls the money supply via the required reserve ratio, open market operations, and discount rate?
Explanation
Answer: D - In monetary policy, the Federal Reserve controls the money supply via the required reserve ratio, open market operations, and discount rate. The required reserve ratio is the minimum reserves banks must hold as required by law; when the required reserve ratio falls, the money stock rises. The reserved funds do not earn interest and cannot be let to customers. Open market operation is the most powerful tool for controlling the money supply. If the Fed sells government securities, it receives money in return, which reduces the money supply. If the Fed buys government securities, it adds reserves into the banking system and the money supply grows. The discount rate is the rate charged to member banks when they borrow from the Fed. If the discount rate drops, member banks can borrow at a lower cost to meet reserve requirements.
