Reserve requirements are changed

A. less frequently than open market operations are conducted and less frequently than the discount rate is changed.

B. more frequently than open market operations are conducted, but less frequently than the discount rate is changed.

C. more frequently than the discount rate is changed, but less frequently than open market operations are conducted.

D. more frequently than the discount rate is changed and more frequently than open market operations are conducted.

Question

Social Studies

Baron Neal

26 April, 12:43

Reserve requirements are changed

A. less frequently than open market operations are conducted and less frequently than the discount rate is changed.

B. more frequently than open market operations are conducted, but less frequently than the discount rate is changed.

C. more frequently than the discount rate is changed, but less frequently than open market operations are conducted.

D. more frequently than the discount rate is changed and more frequently than open market operations are conducted.

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Answers (1)

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Cornelius Jarvis · Answer 1

A) less frequently than open market operations are conducted and less frequently than the discount rate is changed.

Explanation:

Reserve requirements are the least used of the three main monetary policy tools that the Federal Reserve has at its disposal. This is because reserve requirements are the most effective way to either raise or lower the money supply.

For example, if the reserve requirements are increased, commercial banks will have less deposits available to make loans, and less loans means less money supply.

The opposite is true if they are lowered. Banks will have more deposits available to loan, and money supply will go up.