Frequently Asked Question
Which of the following are tools that are employed by the Federal Reserve in its efforts to control the money supply?
I. Moral suasion
II. Changing the discount rate
III. Changing the reserve requirement
IV. Changing the prime interest rate
A. I, II, III, IV
B. II, III, IV
C. I, III
D. I, II, III
The tools of the Federal Reserve include all the above except changing the prime interest rate. The prime interest rate is set by banks. To be sure, the practices and policies of the Fed affect the prime, but the Fed does not set that rate. The Fed also employs the operations of the FOMC, and Regulation "T" in its efforts. For more help see moral suasion, and our Series 7 Exam Prep.
Correct answer: d. I, II, III
II. Changing the discount rate
III. Changing the reserve requirement
IV. Changing the prime interest rate
A. I, II, III, IV
B. II, III, IV
C. I, III
D. I, II, III
The tools of the Federal Reserve include all the above except changing the prime interest rate. The prime interest rate is set by banks. To be sure, the practices and policies of the Fed affect the prime, but the Fed does not set that rate. The Fed also employs the operations of the FOMC, and Regulation "T" in its efforts. For more help see moral suasion, and our Series 7 Exam Prep.
Correct answer: d. I, II, III
by
Peter Cherewyk
Peter Cherewyk has worked in the financial field for over 10 years. He completed his Bachelor of Commerce from the University of Alberta, and is currently working towards a Chartered Financial Analyst designation. He enjoys hockey and hiking and the opportunity to teach others.
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