Question

The most used tool of the Fed is:

a. the discount window.

b. the reserve requirement.

c. open market operations.

d. These are all used with equal frequency.

Answer 1

Answer -
Option (c) - Open market operations is correct.
Explanation -
The Federal Reserve uses buying and selling of U.S.treasury securities for control of money supply.If Federal Reserve wants to stimulate the economy and expects a growth, it purchases securities from banks etc.It is an important tool of Fed to influence the supply of bank reserves and it ultimately results in to change in interest rates.The most of open market oprations used by Fed it enable to purse its objectives like maximising employment,promoting stable prices by efficiently controlling the supply of reserves in banking system.It is the most flexible in nature.so the most used tool of Fed is open market operations.