POLICY TOOLS OF THE FED RESERVE

Name the 4 tools the fed reserve uses

reserve requirements, open market operations, discount rate, interest on reserves.

Reserve Requirements

the percentage of each deposit that banks hold aside

To increase money supply with RR

lower the RR

to decrease money supply with RR

raise the RR

Discount Rate

the rate of interest the Fed charges on bank borrowing

To increase money supply with DR

lower the DR

To decrease the money supply with DR

raise the DR

Open market operations

buy or sell government securities in the secondary market

bigger money supply with OMO

buy bonds

smaller money supply with OMO

sell bonds

interest rate paid on reserves

the fed can increase or decrease the rate of interest on reserves that banks hold

to increase the money supply with ir on reserves

lower the ir paid on reserves

to decrease money supply with ir on reserves

raise the interest rate paid on reserves