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Monetary Policy: The Federal Reserve's 3 Tools

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How does the Fed implement monetary policy to manage the economy?

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The Federal Reserve uses three main monetary policy tools. All are designed to change the money supply.

1. Open market transactions

The Fed can put money into the economy by buying bonds, or remove money from the economy by selling bonds.

2. Changing the required reserve rate

By decreasing the percentage of assets ...

Solution Summary

This solution details the three main policy tools that the Federal Reserve uses to implement monetary policy and manage the economy.