ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The FOMC is the body of the Federal Reserve System that sets national monetary policy (figure 2.4). The FOMC makes all decisions regarding the appropriate position or “stance” of monetary policy to help move the economy toward the congressionally mandated goals of maximum em-ployment and price stability.

Detailed explanation-2: -The Fed can influence the money supply by modifying reserve requirements, which generally refers to the amount of funds banks must hold against deposits in bank accounts. By lowering the reserve requirements, banks are able to loan more money, which increases the overall supply of money in the economy.

Detailed explanation-3: -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.

Detailed explanation-4: -The Fed has traditionally used three tools to conduct monetary policy: reserve requirements, the discount rate, and open market operations.