Specifically, examine the three tools (reserve requirements, open market operations, and interest rates charged to banks -- federal funds and discount rates) it possess to control the money supply. Given our present economic situation, discuss how the Fed might best employ these tools.
2007-03-23 04:38:45 · 2 answers · asked by fradykat 2 in Social Science ➔ Economics
The Fed reduces the reserve requirement to make more money available. The Fed does open market operations to stimulate the economy, the Fed adjust the Fed funds rate to increase or decrease the interest rates.
The Fed best uses them in combination being visionary vs. reactionary.
2007-03-23 05:03:21 · answer #1 · answered by Santa Barbara 7 · 0⤊ 0⤋
The Fed rarely changes reserve requirements (to do so would cause liquidity issues with banks); but they WILL utilize open market operations which changes the market interest rates.
2007-03-26 00:22:57 · answer #2 · answered by Anonymous · 1⤊ 0⤋