Monetary policy is used is used b y the central bank to control the flow of money. Through dual mandate the monetary policy is implemented by the federal reserve.
There are mainly three tools used by the federal reserve as a determinant of monetary policy.
The first is Open market operations, dealing through bonds with the investors. The second is through Interest rates, adjusting them according to the demands.
The third and the most important tool is requirements of the reserve, this is to manipulate the funds with the banks.
Money can always be deposited by the banks to the federal reserve and can earn interest on the reserved balance.
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