Question

True or False and why..The Federal reserve monitors and regulates the supply of money in the economy.

Answer 1

True.

The federal reserve is the central bank of united states and it controls the supply of money into the economy. The fed controls the money supply

1. Reserve ratio: all the banks are required to to keep a certain amount it with the Federal Bank. This amount is termed as reserve that is mantener by the Fed the basic function of this is to keep some portion of the investors money safe. If the fed increases the required reserve then banks will have less fund available with them to disburse loan. Thus, it is also a tool to regulate the money supply into the economy.
2. Discount rate / Bank rate: when Fed increases the discount rate then and the banks will be required to to pay a higher interest rate which in return will cause the loans to become costlier find therefore less number of consumers will be taking loan from the banking system.
3. Open market operation: through open market operation the Federal Bank ok directly affects the the supply of money into the economy point in case if the Federal Bank is having an objective to inject more money e into the economy then and they would be buying the government Bond that is treasury Bond from the public while if they are having an objective to withdraw money from the economy then and they will be selling the treasury bonds. Therefore, the fed minutes and controls the money supply.

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