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Two Ways By Which The Federal Reserve Regulates Money Supply

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There are essentially two different policies by which the Federal Reserve controls and regulates the money supply. The easy monetary policy and the tight monetary policy. The easy monetary policy causes the money supply to expand resulting in interest rates falling. The tight monetary policy causes the money supply to contract, resulting in interest rates rising. Basically, The Fed changes interest rates by changing the size of the money supply. When the Fed expands the money supply causing interest rates to fall, it causes people to borrow more. When the Fed restricts the size of the money supply it results in higher interest rates and slower economic growth because higher interest rates normally encourage everyone to borrow and spend less.
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An increase in the money supply decreases interest rates and it works as a tool to promote and encourage lending and investment in the U.S. economy which will resulting in a reduction in the unemployment rate. The move will as well improve credit availability since commercial banks will have more money to lend and new investments will be coming into the economy. Under such economic developments businesses can expand

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