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What is the primary tool used by the Federal Reserve when it re…

  • Question 4c of 10 - economic policy

  • Maximum Attempts: 1
  • Question Type: Multiple Choice
  • Maximum Score: 1
  • Question: What is the primary tool used by the Federal Reserve when it responds to economic booms and recessions?
  • Answers:
  1. The changing of the discount rate it charges when it lends money to banks
  2. The buying and selling of bonds in open market operations
  3. The printing of money or destroying of money previously printed
  4. The changing of the reserve requirements controlling how many assets banks have to keep on hand

The correct answer is: The buying and selling of bonds in open market operations. Changing the discount rate is a major step that is taken only once every few years. Changing the reserve requirements puts serious strains on the banking system and is almost never done. The Department of the Treasury is in charge of printing and destroying money.

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