The Federal Reserve is the US Central bank. The main job of the Fed is to influence the amount of money and credit in the US economy. The Fed take charge of the money supplied to stabilized prices in the market, which help in the attainment of economic output and employment goals. They also regulate the activities of commercial banks, stabilizing the macro economy. They equally provide check clearing and long distance payment between banks. The Fed operates as a lender of last resort.
The Federal Reserve’s tools commonly use for monetary policies are opens market operation, the discount rate and reserve requirements.
Open market operations are the most often used tool of the monetary policies. The Federal Reserve trade in government securities
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It occurs through interest rate paid by the banks from short-term loan issued by Fed. The discount rate is lower than the federal funds rate. The discount rate is utilized by Fed to announce a change in it monetary policy.
The third monetary policy used by Fed is the Reserve Requirement; Commercial banks by law set a percentage of their deposit as reserves to be kept by the Fed. The Fed determines the amount for all banks. The Fed enables inter-bank transaction to take place.
2. The Fed conduct expansionary activities in other to combat unemployment in a recession by lowering interest rates which provide easy access to credit enabling businesses to take credit and expand their activities. By so doing this increase the money supply in the economy.
The primary ways expansionary monetary policy is implemented, are through open market operations. The Fed purchase government bonds, which put downward pressure on the interest rates. This increase the money supply, but also trough their effect on interest rates, promote investment with much cash in hands of banks, it is easier for them to issue out loans to it customers. This led to the decrease of interest rate, which encourage investment and reduce