Author Question: List the Fed's main policy tools and briefly explain each one. What will be an ideal ... (Read 159 times)

nummyann · **on:** Jun 29, 2018

List the Fed's main policy tools and briefly explain each one.

What will be an ideal response?

Question 2

All points above a given indifference curve are

A) inferior to any point on the indifference curve.
B) preferred to any point on the indifference curve.
C) definitely not affordable.
D) Both answers Band C are correct.

rleezy04 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The Fed's main policy tools are: required reserve ratios, last resort loans, and open market operations. Banks and thrifts are required to hold a minimum percentage of deposits as reserves. This minimum percentage is determined by the Fed and is known as a required reserve ratio. The last resort loan reflects the fact that the Fed stands ready to make loans to financial institutions when other firms may be unwilling to do so. The interest rate charged on these loans is the discount rate. An open market operation is the buying and selling of government bonds by the Fed in the open market.

Answer to Question 2

B