Question

Which tool does the federal reserve use to control monetary policy through bank borrowing? discount rate money creation open-market operations reserve requirement

Answer 1

The federal reserve use open-market operations tool to control monetary policy through bank borrowing.

What are open-market operations?

Open market operations tend to imply the process in which the Fed buys and sells securities of the government in the financial market or to commercial banks.

Therefore, the money supply stabilizes when Fed sells securities that decrease the borrowing capacity of the banks. Similarly, when Fed purchases securities, the banks' borrowing capacity increases which increase the money supply.

Learn more about Federal reserves here:

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