Question

1. Describe the reserve requirements method of conducting monetary policy, including a description of this method and the effects on the economy that are likely to result.

Answer 1

are And as The Federal Reserve monetary policy. They discount rate bank i to raise or that able to case of sudden withdrawals. Reserve requirements are the central the method for conducting monetary policy for the central uses theree methods for conducting reserve requirements, the and open market operations. So one of lower the reserve requirement, Reserve requirements are are the amount of funds a bank holds in reserve to ensure that it is meet liabilities in a tool used by bank to increase or decrease money supply in the economy and influence interest rates. It is the rate that banks must keep lend. The reserve requirement is a tool that the Feed has at its disposal to control liquidity in the financial system. By reducing the reserve requirement, the Feel is executing an expansionary monetary policy, and Converse ly, when it raises the requirement, it's exercising a contractionary ononetary policy. This action cuts liquidity and causes a cool down in the economy. in reserve and are not allowed to When the federal Reserre decreases the reserne requirement, it lowers the amount of cash that banks are required to hold in reserves, allowing them to make more loans to consumers and businesses tha increase the nation's money supply and expands the economy.