What are the various ways in which the Federal Reserve can influence the money supply? Please...

What are the various ways in which the Federal Reserve can influence the money supply?

Please read the Fed and money supply lecture

Expert Solution

The money supply in the economy is regulated by the central bank of the countries through Monetary policy

There are two types of monetary policy used during deflation and inflation situation in the economy as follows.

Expansionary Monetary policy use increasing the money supply in the economy during Deflation
Contractionary Monetary Policy used in decreasing money supply during Inflation time.

The following quantitative and quality tool s used in the regulated money supply in the economy

Quantitative tools

CRR- Cash Reserve Ratio every commercial bank has to keep the certain portion of money with central bank higher reserve ratio lower money supply vice verse.

Bank Rate-Repo rate when central bank lends to the loan to the commercial bank known as bank rate higher the rate lower the supply of money in the economy

Open Market Operation- Selling government bond to the market and every commercial bank has to buy these band and it results in reducing the lending capacity and hence money supply in the economy is decreased.

These are the effective method used in the controlling fluctuation in the economy.

The qualitative measures or tools such as

The requesting the commercial bank to follow the policies
Monitoring the activities of the commercial banks etc.

Rahul Sunny answered 1 year ago

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