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Why are open market operations the most commonly used actions taken by the Fed? What advantages do open market operations have over other monetary policy tools?

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Alice Sejake
Alice SejakeLv10
31 Mar 2021
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Related questions

The most commonly used tool in monetary policy is
A. reserve requirement
B. discount rate
C. open market operations
D. tax rates
E. government spending

this question pertains to the tools of monetary policy

why does the Fed use open market operations as its principal tool of monetary management, rather than changes in the required reserve ratios, or changes in the discount rate? (Hint: think about the mater of'' announcement effects'')

1. A restrictive monetary policy by the Fed should lead to:

A. A decrease in investment and an increase in aggregate demand.

B. Leave investment unchanged but decrease aggregate demand.

C. An increase in investment and an increase in aggregate demand.

D. A decrease in investment and a decrease in aggregate demand.

2. When the Federal Reserve uses open market operations (OMO) in an expansionary monetary policy:

A. The Fed will purchase stocks from banks, increasing the monetary base.

B. The Fed will buy bonds from banks, increasing bank reserves and increasing the monetary base.

C.The Fed will lower taxes and increase government spending.

D. The Fed will decrease the discount rate, decreasing the monetary base.

3. A primary goal of monetary policy is to:

A. Eliminate trade barriers from other nations.

B. Maintain high interest rates.

C. Reduce the size of the banking sector.

D. Prevent high rates of inflation.

4. The major tools of monetary policy available to the Federal Reserve System involve:

A. Reserve requirements and tax policy.

B. Reserve requirements and open-market operations.

C. The discount rate and exchange rates.

D. Open-market operations and changing government spending,

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