The Fed Has Four Major Tools by Which It Influences

question 4

Essay

The Fed has four major tools by which it influences, indirectly and to a greater or lesser extent, the amount of money in the economy and the general level of interest rates. These tools represent the key ways that the Fed interacts with commercial banks in the process of creating money. Name and describe three of these tools.

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Definitions:

Controlling

In management, the process of monitoring performance and taking action to ensure desired outcomes.

Directing

In management, directing refers to the process of guiding, leading, and overseeing employees to achieve organizational goals.

Planning

The process of setting objectives and determining the actions necessary to achieve them.

Product Cost

The total cost associated with making a product, including direct labor, materials, and manufacturing overhead.