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Difficulty: EasyMonetary Policy, Fiscal Policy, and Economic Tools

Which of the following tools is directly controlled by the Federal Reserve Board as a component of U.S. monetary policy?

  1. Setting the Interest Rate on Reserve Balances (IORB)Answer
  2. B
    Adjusting federal personal income tax brackets
  3. C
    Authorizing spending appropriations for public infrastructure projects
  4. D
    Establishing statutory federal import tariff rates

Answer

Setting the Interest Rate on Reserve Balances (IORB)
Setting the Interest Rate on Reserve Balances (IORB) is an explicit monetary policy tool administered by the Federal Reserve. By altering the interest rate paid to eligible depository institutions on funds held at Federal Reserve Banks, the Fed influences money market rates and overall credit expansion.

Step-by-Step Solution

1
Distinguish monetary policy from fiscal policy authorities
Monetary policy involves managing the money supply and interest rates by the Federal Reserve. Fiscal policy involves government taxation and spending legislation controlled by Congress.
Identifying the governing body responsible for an economic tool determines whether it is monetary or fiscal.
2
Evaluate the choices to identify the central bank tool
The Interest Rate on Reserve Balances (IORB) is set directly by the Federal Reserve to guide short-term borrowing costs across the banking system.
IORB is an established monetary policy mechanism used by central banks.

Key Concept

Monetary vs. Fiscal Policy Tools
Estimated Time:45s
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Topics

Monetary Policy, Fiscal Policy, and Economic Tools

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