Final answer:
The Federal Reserve does not use tax subsidies as a tool for monetary policy; it uses open market operations, reserve requirements, and the discount rate.
Step-by-step explanation:
The tool that is NOT used by the Federal Reserve when engaging in monetary policy is b. Tax subsidies. The Federal Reserve's traditional tools include open market operations, reserve requirements, and the discount rate.
Open market operations involve the buying and selling of government bonds with banks and is the most commonly used tool. Reserve requirements determine the minimum reserves a bank must hold.
The discount rate is the interest rate charged by the Federal Reserve on the loans that it gives to commercial banks. Historically, changing the discount rate has had less impact on banks' behavior compared to open market operations, which are more precise and powerful in executing monetary policy.