Federal Reserve Research Paper Example | Topics and Well Written Essays - 250 words

federal concur - Research Paper ExampleMonetary policy is used to control inflation by rewrite the set aside ratio requirement or increasing the funds rate so as to deoxidize the demand of goods in the economy. Monetary policy influences the bullion supply and by this tool it controls the inflation (The Federal constraint System 2012).Open market operation is a tool that the Fed uses to increase or decrease the money supply. Through open market operations the fed buys or sells treasury bills, Notes or bonds. This is the way the Fed alters total reserves in the banking system. When the Fed buys $50 million of bonds from a bank, the banks reserve would increase by the same amount and eventually that money would be loaned out by the bank. The $50 million increase in bank reserves would cause an equivalent increase in their fiscal base (Colorado 2011).When the Fed undertakes a stimulus program, it essentially increases the money supply in the economy. As seen in the above exampl e, the money supply will increase by $50 million times the money multiplier. If the money multiplier is 5, the money supply will increase by $250 million and obviously that would issue big impetus to the economy (Colorado 2011).Currently, the Fed discount rates are quite low, near to 0.25% that indicates the disposal wants to give boost to the economy by increasing money supply. After 2008 meltdown, the government bought long-term treasury bonds and notes. This indicates that the Fed is making all efforts to increase money supply to revive the market (The Federal Reserve System