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Which three tools does a central bank use to manage the money supply?
AOpen market operations, reserve requirements, discount rate
BIncome tax rates, customs duties, and government spending
CMargin requirements, deposit insurance, bank charters
DExchange controls, wage ceilings, and price ceilings
Answer & Solution
Correct answer: A. Open market operations, reserve requirements, discount rate
1. The three tools for managing the money supply are open market operations, reserve requirements and the discount rate.
2. Open market operations move bonds, reserve requirements move the share of deposits held back, and the discount rate moves the cost of central bank credit.
3. Tax rates and government spending are fiscal instruments held by the government, not the central bank.
4. Margin requirements do belong to a central bank, but they sit under credit rules rather than among the money supply tools.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 15 "Understanding Money and Financial Institutions", section 15.2 The Federal Reserve System_
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