Monetary Policy Paper Mba 501

Running Head: The federal official take into account and Macro economical Factors The adderal Reserve and Macroeconomic Factors University of Phoenix ? Introduction The Federal Reserve controls the economy of the unite States through a variety of tools. They use these tools to shape the financial policy of the United States in target to promote economic growth and reduce the rate of inflation and the unemployment rate. By adjusting these tools, the Fed is able to control the amount of silver in the supply. By controlling the amount of funds, the Fed spate affect the macro-economic indicators and flatus the economy away from runaway inflation or a recession. The Federal Reserve The Federal Reserve uses three main tools in order to control the money supply. The first tool is straight-from-the-shoulder-market operations. These operations consist of the acquire and selling of government bonds to commercial beachs and the public. Open-market operations are the most important tool that the Fed goat use to influence the money supply (Brue, 2004, p. 252). By buying bonds from the open market, the Federal Reserve increases the reserves of commercial banks which in turn will increase the overall money supply in the country. The opposite is true if the Fed sells bonds on the open market.

By doing so, the Fed reduces the reserves of banks and, in turn, takes money bring out of the system. By being able to control how much money the commercial banks can lend, the Fed has a very efficacious tool to adjust the economy. The second tool the Federal Reserve uses is the adjustment of the reserve ratio. The reserve ratio is the ratio of the needed reserves the commercial bank must keep to the banks own outstanding checkable-deposit liabilities (Brue, 2004, p. 254). By raising and saturnine the ratio, the Fed can control how much the commercial banks can lend. For example, if the Fed lowers the reserve ratio, commercial banks will now have a bun in the oven more excess reserves allowing them to lend more money to businesses or individuals.... If you want to get a full essay, order it on our website: Orderessay

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