Question

The Fed’s monetary policy tools directly impact the supply of money in a major way through their ______________.

Answer 1

Answer:

open market operation

Explanation:

Open market operation is the mechanism of Fed to alter money supply. To increase the money supply, Fed will buy financial securities such as Treasury bills from large banks or security dealers so there is more money deposit in the account of those who buy securities from Fed. Thus, there is more money available for loan hold by the banks resulting in an increase in the money supply. Fed does otherwise to reduce the money supply.