ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The Fed controls the supply of money by increas-ing or decreasing the monetary base. The monetary base is related to the size of the Fed’s balance sheet; specifically, it is currency in circulation plus the deposit balances that depository institutions hold with the Federal Reserve.

Detailed explanation-2: -The Fed has traditionally used three tools to conduct monetary policy: reserve requirements, the discount rate, and open market operations.

Detailed explanation-3: -The monetary policy is a policy formulated by the central bank, i.e., RBI (Reserve Bank of India) and relates to the monetary matters of the country. The policy involves measures taken to regulate the supply of money, availability, and cost of credit in the economy.

Detailed explanation-4: -The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy. The Federal Reserve controls the three tools of monetary policy–open market operations, the discount rate, and reserve requirements.