Monetary Policy Using the amount of money and credit available to consumers to influence the economy

Who controls monetary policy?

Tools of the FED  reserve requirement - the FED requires banks to hold a certain amount of money from circulation  The bank may not loan this money to any customers.  What would happen to the amount of money circulating in the economy if the FED reduced the reserve requirement?  reserve requirement - the FED requires banks to hold a certain amount of money from circulation  The bank may not loan this money to any customers.  What would happen to the amount of money circulating in the economy if the FED reduced the reserve requirement?

Tools of the FED  discount rate - the FED charges banks to borrow money  In order to get money from the FED, banks must pay interest on that money.  What would happen to the amount of money in circulation if the FED increased the discount rate?  discount rate - the FED charges banks to borrow money  In order to get money from the FED, banks must pay interest on that money.  What would happen to the amount of money in circulation if the FED increased the discount rate?

Tools of the FED  Open market operations  the FED can buy or sell government securities  What happens to the amount of money in circulation if the FED sells securities to the banks?  Shop the U.S. Government! Shop the U.S. Government!  Open market operations  the FED can buy or sell government securities  What happens to the amount of money in circulation if the FED sells securities to the banks?  Shop the U.S. Government! Shop the U.S. Government!

Impact on the Economy  If the FED increases the amount of money in circulation, how will banks change interest rates?  When interest rates decrease, what happens to consumer borrowing and spending?  If the FED increases the amount of money in circulation, how will banks change interest rates?  When interest rates decrease, what happens to consumer borrowing and spending?

Impact on the Economy  If the FED buys securities on the open market, will it stimulate or slow down the growth of the economy?