Question

Describe:

(1) the monetary policy tools;

(2) the structure of the Federal Reserve System;

(3) which federal reserve entity is responsible of making the decision about which policy tool.

Answer 1

A. Monetary policy tools are all such elements of the monetary policy which will be used for controlling the supply of money in the economy and which will help in stabilization of the monetary flow in the economy by the central bank and all these monitoring tool are specifically used by the central bank in order to control the flow of money in the economy and monitoring tools will include various tools like interest rate along with the reserve requirements changing of the bank and changing of the Federal fund rates and open market operations including buying and selling of the treasury securities.

B. The structure of the Federal Reserve system is twotier system in which the main control is with the the centre and it would be headed by the governor whereas they would be 12 other Federal Reserve Banks at various state level which will be controlled by the central governor and their task would be to implement the policy of the Federal Reserve

C. Federal open Market committee (FOMC) will be responsible for making the decision about the monetary tools.