1. List three main tools available to the Fed to change the money supply in the...

1. List three main tools available to the Fed to change the money supply in the economy.

Which tool do you think is most commonly used?

If the Fed wanted to decrease money supply in the economy, would the Fed buy or sell securities in the open market?

What would be the first effect of this policy?

Expert Solution

Three main tools are-

1) Open market operations i.e. central bank buys or sells securities to country's private banks. These purchases have effect on bank's reserves and therefore ultimately it effects the money supply.

2) Reserve requirement- central bank requires each bank to hold some percentage of reserves in hand. The excess reserve are loaned out and effects the money supply. But the excess reserve depends on the required reserve ratio.

3) Discount rate- it is the rate that CB charges it's members to borrow at its discount window.

Open market operations is the most commonly used tool by the Fed, where they increase(or, decrease) interest rate by selling (or, buying) securities.

If the Fed wants to decrease money supply, it should sell securities in the open market i.e. selling securities in exchange of money.

If Fed sell securities, they will increase interest rate, so that Banks find it more profitable to buy securities from the Fed.

Rahul Sunny answered 2 years ago

List and Explain the three tools the Fed has at its disposal to change the money...

List and Explain the three tools the Fed has at its disposal to change the money supply and therefore change interest rates.

what are the three tools the central bank can use to change the money supply? describe...

what are the three tools the central bank can use to change the money supply? describe how the central bank can use each of these tools to either increase or decrease the money supply.

What tools can the FED use to increase or decrease the money supply. Describe it full....

What tools can the FED use to increase or decrease the money supply. Describe it full. What effect does each tool have on GDP inflation and employment. For example if the Fed increases interest rates what might be the impact of that action on GDP, Inflation and Employment?

Describe two tools the Fed can use to affect the money supply, other than open market...

Describe two tools the Fed can use to affect the money supply, other than open market operations. Changes in required reserves and changes in the discount rate. Please answer step by step write very clearly if Possible with computer.

What are the three tools of the Federal Reserve for controlling money supply? What is the...

What are the three tools of the Federal Reserve for controlling money supply? What is the difference between the Discount Rate and the Federal Funds rate? If banks need to borrow money to meet reserve requirements, how do they get that money and from whom? What is the equation that represents the “Quantity Theory of Money”? What do each of the terms mean?

In your own words; explain the three main monetary policy tools the Fed uses to try...

In your own words; explain the three main monetary policy tools the Fed uses to try to prevent inflation and recession.

1) Suppose that the Fed decides to increase the growth rate of the money supply in...

1) Suppose that the Fed decides to increase the growth rate of the money supply in the United States. What is most likely to happen to the U.S. trade deficit and to GDP? Answer. The trade deficit will fall; GDP will rise Please explain why? 2) Explain three factors that would cause the dollar to appreciate?

Describe the 4 main tools of monetary policy that the Fed uses. Describe the Fed’s main...

Describe the 4 main tools of monetary policy that the Fed uses. Describe the Fed’s main goals (in terms of monetary policy) Explain and show how the money market (supply and demand for money) is used to find the equilibrium interest rate and how it is affected by changes in the money supply. Show the diagram and explain the slope of money demand and illustrate what happens when the Fed increases or decreases the money supply.

Describe the monetary policy tools available to the Fed and how they can be used to...

Describe the monetary policy tools available to the Fed and how they can be used to decrease the money supply

There are three specific ways available to the Federal Reserve to alter the money supply? Identify...

There are three specific ways available to the Federal Reserve to alter the money supply? Identify each method and explain each one works. Which one is applied most often and why is this the case?

Question