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Fed's Monetary Policy Tools Answer

Your question:

List the three major monetary policy tools the Federal Reserve (the Fed) can use to decrease the money supply. Explain how the tool would be used.

Tool 1: ______________________ (1 point)

How the tool is used: (2 polin)

Assignment Help Answers with Step-by-Step Explanation:

The Federal Reserve (the Fed) has several monetary policy tools at its disposal to decrease the money supply when it aims to control inflation or tighten monetary conditions. Here are three major monetary policy tools and explanations of how they are used:

  • As banks have less money to lend to businesses and individuals, interest rates rise, making borrowing more expensive and reducing overall spending and investment.

Tool 2: Reserve Requirements

Tool 3: Discount Rate

How the tool is used:

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the fed can raise the reserve requirement
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