The Federal Reserve Has Three Tools to Control the Money

question 78

Essay

The Federal Reserve has three tools to control the money supply: open-market operations, the discount rate, and reserve requirements.
a. How should each instrument be changed if the Fed wishes to decrease the money supply?
b. Will the change affect the monetary base and/or the money multiplier?

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Definitions:

Brachiocephalic Vein

A large vein in the upper chest that forms from the union of the internal jugular and subclavian veins and drains blood from the head, neck, and upper limbs.

Hepatic Portal Vein

A blood vessel that carries blood from the gastrointestinal tract and spleen to the liver, crucial for nutrient processing.

Superior Mesenteric Vein

A vein in the abdomen that drains blood from the small intestine, ascending colon, and transverse colon into the portal vein.