MonetaryPolicyTools - Ashley Baker BTC 2603 Sec 05 Monetary Policy Tools The most commonly used monetary policy tool is open market operations which is

MonetaryPolicyTools - Ashley Baker BTC 2603 Sec 05 Monetary...

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Ashley BakerBTC 2603 Sec 05October 19, 2016Monetary Policy ToolsThe most commonly used monetary policy tool is open market operations which is used on a daily basis by the Fed. This means they are able to purchase or sell U.S. Treasury bills or other investments on the open market. In a time of slow, economic growth, the Fed will normallybuy these securities from places like large banks in order to spur growth in the economy. If there is a period of high inflation in the economy, the Fed will sell those securities to investors in order to slow the money supply so the desired level of economic growth is achieved. [Fer151]The Fed also lends money to banks, but only as a last resort. This is called the discount rate, and the rate is often high to discourage banks from borrowing. Using this method, the Fed is able to keep the economy on a certain level of growth. However, if the economy is going through a period of deflation, the Fed will lower this discount rate to encourage banks to borrow

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