Describe three ways in which the Federal Reserve can change the money supply.?

Question

Describe three ways in which the Federal Reserve can change the money supply.
If the Federal Reserve is going to adjust all of these tools during an economy that is growing too quickly, what changes would they make?
If the Federal Reserve is going to adjust all of these tools during an economic recession, what changes would they make?
What changes, if any, to the current condition of these tools would you make at the next meeting of the Federal Reserve? Explain why and the benefits/drawbacks of this strategy.

Answer 1

The Fed controls the money supply in three ways.

First, it sets the "reserve requirement" for all banks. The reserve requirement is the amount of money a bank must hold in its reserve (typically its vault or on deposit at other banks) relative to all the money it has lent out. Thus, the Fed can shrink the money supply (known as "tightening") by requiring banks to hold more in reserve, which pulls money out of the system. Of course, Fed governors can also expand the supply (known as "loosening") by lowering reserve requirements.

The second way the Fed controls the money supply is through the buying and selling of Treasury bills and notes. When the Fed sells a T-Bill, it's taking money out of the system and replacing it with a security, which isn't counted in money supply — and vice versa when the Fed buys back bills and notes.

Finally, the Fed moderates the money supply through raising or lowering interest rates. The Fed sets the federal funds rate, the rate that banks charge each other for overnight borrowing, and the discount rate, which is the rate the Fed charges banks to borrow from it. Banks pass on the changes in these rates by adjusting their lending and borrow rates accordingly. Rising rates tend to to tighten money supply by discouraging use of money for spending. The opposite is true for falling rates.

Answer 2

1. The federal reserve can print more money or increase/ decrease the interest rate. Loan and borrow since it is a privately owned banking system. 2. They print more money ( which is bad because it is not backed by anything ) 3. They lower the interest rate. They suck 4. I would slowly ween our country off of the privately owned, unconstitutional federal reserve. We need a currency that is sound and cannot crash. If you don't know already, One of the main reasons why we went into Iraq is Saddam vowed to stop accepting the dollar for oil. Our dollar was backed by Opec in a trade deal for a while. Saddam said he would only accept the Euro. Also the Federal Reserve has been a force behind every war since WWI. They wanted us to go into the middle east so they can control the monetary supply. Similar to Venezuelen president that stated he wouldn't accept the dollar, our CIA attempted an unsuccessful and embarrassing coup detat. And now that Iran doesn't want to accept the dollar anymore there is talk in Washington of bombing Iran. The Federal Reserve has no Audits. So we need sound money.

Answer 3

The federal reserve can influences three ways on the money supply .They are changing the monetary base, changing the reserve ratio and the money multiplier.

Answer 4

I would counter by asking a question in return. Why would one think we need the Federal Reserve in the First Place? Created in 1913, does it accomplish its stated goals? And at what price?

The two sources I listed are both the same author, Ron Paul.
The first article is a great read!