Question

Which one of the following is a tool of monetary policy often used by the Fed for altering the reserves of commercial banks?
A. Issuing currency
B. Check collection
C. Required reserve ratio
D. Open-market operations

Answer 1

Answer:

Option (C) is correct.

Explanation:

The reserve requirement ratio refers to the ratio of deposits that are kept with the Fed.

It is one of the important monetary policy instruments that Fed uses for controlling the money supply in an economy. The Fed reduces the reserve requirement ratio if there is a need to increase the money supply in an economy and it increases this ratio if there is a need to reduce the money supply in an economy.

Answer 2

The tool of the monetary policy used by Fed is required reserve ratio.

The following information should be considered:

• The reserve requirement ratio means the deposit ratio that are kept with the Fed.
• It is the significant monetary policy instrument that should be used to control the money supply.
• It decreased the reserve ratio when there is an increased in the money supply and vice versa.

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