Which of the following is not used to control money supply:

Question

BlackTom AI · Accepted Answer

Monetary policy tools include open market operations, the discount policy, and reserve requirements; deposit insurance is a financial safety net rather than a primary instrument for controlling the money supply.

1. Relevant knowledge points and concepts
- Open market operations: central bank buys/sells government securities to change bank reserves and the monetary base.  
- Discount policy: central bank lending to commercial banks at the discount window; the discount rate affects banks’ borrowing and reserves.  
- Reserve requirements: the fraction of deposits banks must hold as reserves; changing it alters the money multiplier and thus the money supply.  
- Deposit insurance: protects depositors’ funds if a bank fails (e.g., FDIC); its main role is financial stability and confidence, not direct money-supply control.

2. Step-by-step reasoning
- Open market purchase: central bank buys securities → increases bank reserves → banks can lend more → money supply rises.  
- Discount rate cut: cheaper borrowing for banks → banks increase reserves/credit → money supply rises.  
- Lowering reserve requirement: reduces required reserves ratio → money multiplier rises → same base supports more deposits → money supply rises.  
- Deposit insurance: increases depositor confidence and reduces bank runs but does not directly change reserve levels, central-bank lending, or the monetary base as a deliberate instrument.

3. Calculations (money multiplier example)
- Money multiplier = 1 / reserve ratio. If reserve ratio = 10% → multiplier = 1/0.10 = 10.  
- If central bank injects $100 in reserves via open market purchase → potential increase in money supply = $100 × 10 = $1,000. This illustrates how OMO affects supply directly.

4. Why the correct answer is correct
- Deposit insurance’s mechanism affects behavior and stability, not the central bank’s routine tools to expand or contract money supply. It is regulatory/insurational, not a monetary control instrument.

5. Why other options are incorrect
- Open market operations, discount policy, and reserve requirements each change reserves/multiplier or borrowing costs and thus directly influence money supply.

6. Conclusion
- Therefore, the option not used to control money supply is Deposit Insurance, matching the provided answer.

Which of the following is not used to control money supply:单项选择题

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