Question

Compare the methods of controlling the money supply—open market operations, loans to financial institutions, and changes in reserve requirements—on the basis of the following criteria: flexibility, reversibility, effectiveness, and speed of implementation.

Short answer

Comparison of monetary policy tools

Step-by-step solution

Step 1. Given information

As far as adaptability, Open Market Operations can be directed right away and paying little heed to length or financial worth. In the event that the Fed or banks consider the open market activity superfluous, they can undoubtedly and be switched by means of the Trading Room Automated Processing System (TRAPS) framework. With the TRAPS framework, the authoritative deferral is a nonissue because of the framework molecularly putting orders and being executed at the hour of offer. This prompts an in general compelling strategy for the Federal Reserve, permitting them to control the cash supply at all of an intrusive way as could be expected.,

Step 2.According to unlike open market operations

Not at all like Open market tasks, advances to monetary organizations require activity from the banks to make a total exchange. This makes them be delayed to carry out and not guaranteed all of the time. The Fed can energize or beat a banks' getting of stores down yet can't compel a bank to settle on a choice. This prompts regulatory slack and won't be quickly turned around once the exchange has been finished. Nonetheless, when the ball gets moving and the banks change in accordance with the new rebate levels, it gives a successful means to controlling the cash supply.

Step 3. Explanation

Save prerequisites are seldom different, promptly followed, tolerably viable yet consume a huge chunk of time to execute. They are frequently utilized after seasons of emergencies as an overcorrection to a theoretical market, however are never viewed as the essential strategy for controlling the cash supply.

Step 4. Final answer

As far as positioning these three financial arrangement devices, open market activities give the best and adaptable ways of controlling the cash supply, with rebate credits following behind and Reserve Requirements as a last, emotional retreat.