Money Supply the Federal Reserve Can Control Term Paper

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Money Supply

The Federal Reserve can control the money supply through open market operations, changing the required reserve rate, the percentage of deposits that banks must maintain on reserve as cash deposits at the Federal Reserve banks, and by changing the discount rate, the rate of interest at which the Fed lends money to banks (Federal Reserve System). This paper describes how these tools can be used during times of too rapid growth and economic recession and recommends policy for our current economic situation.

To slow down an economy that is growing too quickly, the Federal Open Market Committee can sell securities of the Department of the Treasury on the open market to reduce bank reserves and raise the federal funds rate. Further, raising the required reserve ratio will mean that banks can't create as much money.

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And, by raising the discount rate, the Fed discourages banks from borrowing money from the Fed.

During an economic recession, the Fed can purchase U.S. Treasury securities on the open market from the public and banks. This will inject cash into the economy, expand bank reserves and lower the federal funds rate. Thus, banks have more money….....

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"Money Supply The Federal Reserve Can Control" (2004, July 31) Retrieved June 28, 2025, from
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"Money Supply The Federal Reserve Can Control" 31 July 2004. Web.28 June. 2025. <
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"Money Supply The Federal Reserve Can Control", 31 July 2004, Accessed.28 June. 2025,
https://www.aceyourpaper.com/essays/money-supply-federal-reserve-control-175681
   

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