Question

Other things equal, an open market sale by the FED will:

a) Increase the money supply

b) Increase the interest rate

c) Decrease the interest rate

d) Decrease the discount rate

Which one of the following is a monetary policy tool available to the FED?

a) Open Market operations

b) Reserve Requirements

c) Discount Rate

d) All of the above

The tools that the FED has in its disposal to conduct monetary policy include:

a) The fed funds rate and the discount window.

b) The discount rate, the fed funds rate, and the open market operations.

c) The discount rate, the reserve requirement, and the open market operations.

d) The discount rate, the open market operations, and the infaltion tax (a.k.a. seignorage).

Note: Please Explain, don't just give the answer

Answer 1

Q1
Answer
Option b
A sale of bonds sends bonds to public or bank, and the money to Fed means the money goes out of the economy. It decreases the money supply. A decrease in the money supply shifts the money supply curve to left. It increases the interest rate in the new equilibrium.

----------------
Q2
Answer
Option d
Monetary policy uses all of these tools.
An open market operation to sell or purchase securities to decrease or increase the money supply.
Reserve requirement and the discount rate to change the money supply.
A discount rate is a rate on the funds borrowed from the Fed.
----------
Q3
Answer
option c

c) The discount rate, the reserve requirement, and the open market operations.

A federal fund rate is a rate charged by banks by banks on overnight borrowing, and it is decided by the overnight borrowing market.
The other thing in option c is used by the Fed to control the money supply.