what is the most frequently employed instrument of monetary policy?

Question

A. the discount rate

B. reserve requirement

C. open market operations

D. moral suasion

please help and explain the answer.

Answer 1

A and B are both good.

An "instrument" is a _man-made tool_.

The "open market" is considered hazardous and contingent; in theory and _popular_ "free market" myth it exists _beyond_ public or private interventionist control . So scratch out "C." Your conventional economics professors would ding you for this cynical answer.

Moral suasion? Appeals to "morality" have no place in the existential, highly amoral post-Marxist, "finance capitalism" economy. That eliminates "D."

Bankers _love_ the ridiculously low "reserve requirement," as low reserve results in minimal-risk, obscene banking profits.

So that leaves the cheap-money-to-banks "discount rate." "A," the obvious answer.

You really should read that economics book. In a representive democracy, it'll do you a world of good, make you an informed citizen and prepare you to vote for informed politicians, as opposed to the pro-corporate sponsored hacks...

Be well.

I suspect the discount rate "carrot" tends to be the one most often used.

Source(s): The Age of Uncertainty by J. K. Galbraith; The Money Masters, a documentary; (free on the www) Tragedy and Hope by Carroll Quigley (free on the www)

Answer 2

The correct answer is C. Change the fund rate through market operation.