ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The Federal Reserve controls the three tools of monetary policy–open market operations, the discount rate, and reserve requirements.

Detailed explanation-2: -To carry out monetary policy, the Federal Reserve has four tools at its disposal. They control the discount rate, engage in open market operations, can change bank reserve requirements, and update margin requirements.

Detailed explanation-3: -The Fed implements monetary policy primarily by influencing the federal funds rate, the interest rate that financial institutions charge each other for loans in the overnight market for reserves.

Detailed explanation-4: -The fed funds rate is the interest rate that depository institutions-banks, savings and loans, and credit unions-charge each other for overnight loans. The discount rate is the interest rate that Federal Reserve Banks charge when they make collateralized loans-usually overnight-to depository institutions.