ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Central banks have four main monetary policy tools: the reserve requirement, open market operations, the discount rate, and interest on reserves.

Detailed explanation-2: -The Fed has traditionally used three tools to conduct monetary policy: reserve requirements, the discount rate, and open market operations. In 2008, the Fed added paying interest on reserve balances held at Reserve Banks to its monetary policy toolkit.

Detailed explanation-3: -The Federal Reserve controls the three tools of monetary policy–open market operations, the discount rate, and reserve requirements.

Detailed explanation-4: -In the broadest terms, monetary policy works by spurring or restraining growth of overall demand for goods and services in the economy. When overall demand slows relative to the economy’s capacity to produce goods and services, unemployment tends to rise and inflation tends to decline.

Detailed explanation-5: -Definition: Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.