Federal Reserve Money Supply
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Describe the three ways in which the Federal Reserve can change the money supply.
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Solution Summary
There are three main ways that the Federal Reserve may change the supply of monies.
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Describe the three ways in which the Federal Reserve can change the money supply
1. The first and most important way the Federal Reserve can affect the money supply is through Open Market Operations (or OMO). This includes Open Market Sales and Open Market Purchases. The committee in charge of these actions for the Federal Reserve is the Federal Open Market Committee (or FOMC). This committee is responsible for setting the Federal Reserve's monetary policy and controls the sale of securities such as notes and bonds to the open market. The reason this is the Reserve's most effective tool is because the OMO can very easily implement changes and can be regularly monitored and changed based on assessment of the economy.
2. The second and least popular means the Federal Reserve has to affect the money supply is called the Reserve Requirement. This is the law that banks must adhere to that requires ...
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