The Federal Reserve's Most Important Tool for Controlling the Amount

question 49

Multiple Choice

The Federal Reserve's most important tool for controlling the amount of reserves in the banking system is

• A) changing the discount rate.
• B) moral suasion.
• C) establishing margin requirements.
• D) open market operations.
• E) buying and selling gold certificates.

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Definitions:

Interest Rate

The component of a loan levied as interest to the borrower, usually characterized as an annual percentage of the outstanding loan value.

Aggregate Demand

Total economic interest in goods and services, assessed at a uniform price level throughout a specific period.

Aggregate Supply

The total supply of goods and services produced within an economy at a given overall price level and in a given time period.

Interest Rate Effect

The impact that changes in interest rates have on consumer spending due to the cost of borrowing; generally, as interest rates rise, consumer spending decreases.