Assuming the Federal Reserve chooses to shrink the money supply, explain how each of the three tools would be used.
The Federal Reserve uses three main monetary policy tools:
1. Open market transactions
2. Change in the required reserve rate
3. Change the discount rate
To shrink the money supply, the Fed ...
This solution identifies each of the three main monetary policy tools of the Federal Reserve and explains how each one would be used to shrink the money supply.