UNIT 4 PART 4

THE FED : TOOLS OF THE MONEY POLICY 

You have two options: EXPANSIONARY(EASY MONEY) and CONTRACTIONARY(TIGHT MONEY).

EXPANSIONARY MONEY  reserve requirement (RR) decreases, the discount rate decreases, and the FED buys bonds to expand the money supply. RR are decreased, increasing the excess reserves, which can become loans and increases the money supply. On the other hand the contractionary policy, required reserves are increased, the discount rate is raised, and bonds will be sold to reduce the money supply.