Question

Х Q7 Unanswered l attempt left An example of a direct tool available to the FOMC is; An example of an indirect tool available to the FOMC is. A reserve requirements; the federal funds rate B open market operations, the discount rate с monetary policy; fiscal policy D federal deposit insurance; operation twist Submit

Answer 1

Correct option is: B: open market operations; the discount rate.

Open market operations is an example of direct tool available to Federal Open Market Committee (FOMC) & the discount rate is an example of indirect tool available to FOMC. Open market operations involves buying & selling of government securities in open market. Government securities are sold when money in circulation has to be reduced while government securities are bought when money in circulation has to be increased. The discount rate is the rate that Reserve bank charges from banks when they borrow money. Discount rate influences other interest rates. So, Reserve bank lowers the discount rate to encourage lending & spending activities by consumers & businesses & vice versa.