The Federal Reserve System

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Monetary Policy The Federal Reserve Board uses three monetary tools that affect macroeconomics such as unemployment, inflation, and interest rates, and control the money supply; these tools are known as discount rate, reserve requirements, and open market operations. In The Economy Today Schiller 2010 states that “Monetary Policy is the use of money and credit controls to influence macroeconomic outcomes” (p.309.) It also refers to the actions assumed by the Federal Reserve Board. Three monetary policy tools that are used in the economic world are open market operations, discount rate, and reserve requirements. When it comes to the monetary policy tools, they are all beneficial, nonetheless the open market operation is the primary and most important tool used by the Federal Reserve System and can be easily executed. Open market operations is the buying and selling of U.S Government securities on the open market for reasons of the growth of credit and money aggregates and the swaying short-term interest rates. It affects the banks reserve through buying or selling of bonds, which ca...

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