HOW THE FED WORKS Free Essay, Term Paper and Book Report
HOW THE FED WORKS
There are three tools the Federal Reserve uses to guide monetary policy. They consist of reserve requirements, open-market operations and the discount rate. All of these tools are used to control the supply and demand of money that banks use for such things as loans. Monetary policy is used by the Federal Reserve to give our economy a level of stability and growth, both in the short-term and long-term. These policies are the backbone of our financial system that keeps inflation, deflation, and other price fluctuations from becoming major problems in the economy. The most commonly used monetary policy is the open-market operations. Open market operations are the most important and the most precise instrument of monetary policy that the Fed relies on. These operations consist of the Fed buying and selling previously issued U.S. Government securities. The Fed adds extra credit to the banking system when it buys Treasury securities from the dealers. It then drains credit when it sells to the dealers. As the law of supply and deman......
Word Count: 957
Page Count: 3.8 (250 words a page / double spaced)
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