Question

What is s the policy used most by the Fed to change money supply

Answer 1

The Fed has three (3) monetary policy tools to help control the supply of money. These are the open market operation, the discount rate, and the reserve requirement. 

The open market operation is the buying and selling of US securities from the securities market or dealers. The discount rate also called an interest rate, is used by the Fed to control the money supply by either increasing or decreasing it. When the Fed wants to increase the level of money supply, it lowers the interest rate thereby encouraging the banks to borrow more and vice versa. The reserve requirement is the required deposits held by banks against their clients. If the Fed increases the reserve requirement, the banks will hold more and vice versa.

The Fed seldom changes the reserve requirement. The most used policy is the open market operation.

Answer 2

The Fed can exercise four means to accomplish its financial system aims:

1. the discount rate
2. reserve requirements
3. open market operations
4. interest on reserves.

Explanation:

All four change the number of reserves in the trading regularity. Discount rate adjustments are performed by Reserve Banks and the Board of Governors.  

If the Fed purchases back circulated assurances (such as Treasury bills) from large banks and bonds traders, it raises the money supply in the hands of the people.

The buy and trade of bonds in the open market by a central bank--are an important means adopted by the Federal Reserve in the implementation of the financial system.