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Monetary Policy. Monetary ... goals. The Federal Reserve Act of 1913 gave the
Federal Reserve responsibility for setting monetary policy. ...
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are two of the tools that government uses to influence its domestic economy. ...
Monetary Policy Paper. ... The state of the economy, concerns of the Federal Reserve,
and the stated direction of recent monetary policy will also be discussed. ...
Monetary Policy. ... The Federal Reserve Act of 1913 gave the Federal Reserve responsibility
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Monetary Policy Analysis. ... It will also examine the role of the Federal Reserve in
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Submitted by boricuabobby on August 12, 2007
Category: Business
Words: 1155 | Pages: 5
Views: 210
Popularity Rank: 54,587
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The Fed another name for the Federal Reserve Bank that makes the central bank in the United States has three tools of monetary policy they can use to control the money supply. They are open-market operations, the reserve ratio, and the discount rate. These three tools used by the Fed influence the money supply have an impact on gross domestic, product (GDP), inflation, and unemployment. The Fed's open-market operations consist of the buying of government bonds from, or the selling of government bonds to, commercial banks and the public. Open-market operations are the Fed's most important instrument for influencing the money supply (p.270). When the Fed decides to buy government bonds from commercial bank or/and the general public the reserve of the commercial banks increase and when they decide to sell the same bond, commercial banks' reserve are reduce. Buying bonds increases the reserves banks will hold, this enables banks to lend more money and they can reduce interest rates. While lower interest rates are available, consumers will be more willing to borrow money to make larger purchases. The Reserve Ratio is another tool that the Fed uses to control the money supply. The reserve ratio is a percentage of deposits that a bank holds as reserves. The Fed mandates a certain percentage of this ratio for commercials banks to hold in their reserves. Raising the reserve ratio can lead to a decrease in excess reserves and prevent lending abilities by commercial banks. If the Fed lowers the reserve ratio the opposite will occur, excess reserves will increase and commercial banks will be able to create money for lending. The Discount Rate is the interest rate that the Fed charges commercial banks for loans. Banks are able to borrow from the Fed if the discount rate charged by the Fed is lower than the federal funds rate charged by other banks. As the discount rate is decreased, banks shift their source of borrowing from other banks to the Fed. As they do so, the total...
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