The Fed's Use of the Interest Rate It Pays Banks

question 1

Multiple Choice

The Fed's use of the interest rate it pays banks on their excess reserves

• A) is a tool the Fed has used effectively over the past several decades to control the money supply.
• B) is a tool that can be used to reduce the supply of money, but it cannot be used to expand it.
• C) is a monetary tool that the Fed introduced in 2008.
• D) is a tool that  could be used to expand the money supply, but it could not be used to reduce it.

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Definitions:

Monetary Policy

The process by which a country's central bank controls the supply of money, aiming to achieve macroeconomic goals like controlling inflation, consumption, growth, and liquidity.

Stabilize Economy

Efforts or policies designed to maintain economic stability by controlling inflation, reducing unemployment, and encouraging growth.

Government Debt

The total amount of money borrowed by the government of a country to fund its operations, which has not been repaid.

Economic Fluctuations

Variations in the level of economic activity, typically characterized by periods of expansion and contraction in real GDP.