Question

31.Which of  the following is a policy( operating) instrument?

    A. Open market operations

  B. Fed funds rate

  C. Inflation   

       D. Discount rate

Answer 1

The correct answer is option B. Fed funds rate

Fed funds rate is the policy operating instrument for the Fed.

Fed can change the Fed funds rate based on economic situation

Example: Fed raises the Fed funds rate if inflation increases or it decreases the Fed funds rate if inflation decreases.

Option A is incorrect open market operations is not a Fed policy instrument, it is just a process

Option C is incorrect because Inflation is not under Fed's control

Option D is incorrect because Discount rate is derived from the Fed funds rate and it is not directly changed by the Fed

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