Part 1The European system of central banks uses similar monetary policy tools to that of the Federal reserve. These tools involve:Part 2
A. open market operations B. lending to banks C. reserve requirements D. Both A and C are correct E. All of the above are correct

Question

Part 1The European system of central banks uses similar monetary policy tools to that of the Federal reserve. These tools​ involve:Part 2
A. open market operations B. lending to banks C. reserve requirements D. Both A and C are correct E. All of the above are correct

BlackTom AI · Accepted Answer

The question compares monetary policy tools used by the European system of central banks with those used by the Federal Reserve and asks which statements are correct about these tools.
Option A: open market operations. Open market operations are a core tool used by central banks to influence short-term interest rates and the money supply by buying or selling government securities. This is correct.
Option B: lending to banks. Central banks lend to banks, typically through standing facilities or discount/window lending, to provide liquidity and influence interbank rates. This is also correct.
Option C: reserve requirements. Reserve requirements mandate the portion of deposits that banks must hold as reserves, which is another traditional instrument of monetary policy. This is correct as well.
Option D: Both A and C are correct. Since both open market operations and reserve requirements are correct tools, this statement is true in describing those two instruments. However, it is incomplete because it omits option B, which is also a valid tool, so D does not capture all the tools available.
Option E: All of the above are correct. Given that open market operations (A), lending to banks (B), and reserve requirements (C) are all valid tools, this option accurately reflects that all listed instruments are correct tools used by central banks.
In summary, A, B, and C are each correct as individual tools, D correctly notes a subset but is not the most complete choice, and E correctly asserts that all of the listed tools are used. The most comprehensive correct choice is E.

Homework:Chapter 18 Homework

Part 1The European system of central banks uses similar monetary policy tools to that of the Federal reserve. These tools involve:Part 2 A. open market operations B. lending to banks C. reserve requirements D. Both A and C are correct E. All of the above are correct

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