Monetary Policy Options

Money Manufacturing

The process of printing money, which is controlled by the government.

Money Creation

The process by which banks loan out money, adding to the original amount, and is controlled by banks.

Federal Reserve Requirement

The amount of money that banks are required to keep in their systems, set by the central bank.

Increased FR Requirement

When the Federal Reserve increases the amount of money banks are required to keep, resulting in decreased lending and a contraction of the money supply.

Decreased FR Requirement

When the Federal Reserve decreases the amount of money banks are required to keep, resulting in increased lending and an expansion of the money supply.

Discount Rate

The general interest rate charged on loans, which is issued by the central bank or commercial banks.

Open Market Operations

The buying and selling of government bonds by the central bank to control the money supply.

Government Buys Bonds

When the government purchases bonds, it increases lending, leading to an expansion of the money supply.

Government Sells Bonds

When the government sells bonds, it decreases lending, resulting in a contraction of the money supply.