Question

the US central bank has stated goal of promoting sustainable economic growth, maintain a stable proce level, and promoting maximum employment. in order to acheive these goals the central bank has sveral tools at its disposal. which of the following is not one of the tools employed by the central bank?

1. change in reseve requirements.

2. change in the diacount rate

3. purchase and sale of S and P 500 stocks

4. purchase/ sale us government security such as treasury bonds.

Answer 1

Reserve requirements are the ratio of bank's deposits that are required to be held with the Fed. The Fed can influence money supply by changing this ratio. It is a tool of monetary policy

Discount rate is the rate paid by the Fed to banks on the deposits held by banks with the Fed. This is also a tool of monetary policy as changing the discount rate will alter the money supply in the economy

Purchase and sale of S&P 500 stocks is not a tool of monetary policy. The Fed does not purchase or sell equities.

Purchase/sale of Treasury Bonds can increase/decrease respectively, the money supply in the economy. It is a tool of monetary policy employed by the Fed