Which of the Following Tools Is NOT a Policy Tool

question 546

Multiple Choice

Which of the following tools is NOT a policy tool of the Fed?

• A) last resort loans
• B) the tax rate on interest income
• C) the reserve ratio
• D) open market operations

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Definitions:

Federal Funds Market

A U.S. financial market allowing banks to borrow and lend excess reserves to each other, usually overnight, at an interest rate called the federal funds rate.

Discount Window

The discount window is a central banking facility that allows financial institutions to borrow reserves, usually short-term, at a predetermined interest rate, to maintain liquidity.

Negative Excess Reserves

Refers to a situation where a bank's actual reserves fall short of the required reserves; although not typical, it would indicate financial stress or unusual circumstances.

Discount Rate

The rate at which the Federal Reserve lends to commercial banks and other depository institutions through its discount window.