ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The Fed uses three primary tools in managing the money supply and pursuing stable economic growth. The tools are (1) reserve requirements, (2) the discount rate, and (3) open market operations. Each of these impacts the money supply in different ways and can be used to contract or expand the economy.

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 Federal Reserve, America’s central bank, is responsible for conducting monetary policy and controlling the money supply. The primary tools that the Fed uses are interest rate setting and open market operations (OMO).

Detailed explanation-4: -Open market operations (OMOs)–the purchase and sale of securities in the open market by a central bank–are a key tool used by the Federal Reserve in the implementation of monetary policy. The short-term objective for open market operations is specified by the Federal Open Market Committee (FOMC).

Detailed explanation-5: -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.