C is corrent. Open market operations through bond sales and purchases are flexible (government securities can be purchased or sold in large or small amounts), cause prompt changes in bank reserves, and are more subtle than reserve ratio changes.
A is incorrect. Reserve ratio changes are infrequent, offer less flexibility, and have less prompt effects than open market operations.
B is incorrect. The amount of commercial bank reserves obtained by borrowing from the central bank is small and because whether a change in the discount rate has much impact depends on whether the change occurs at a time when the commercial banks are inclined to alter their central bank borrowings.
D is incorrect. Manipulation of government spending is an instrument of fiscal policy, not monetary policy.
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