Visit the home page of the Federal Reserve Systems of the central bank of US at

Question

Visit the home page of the Federal Reserve Systems of the central bank of US at
www.federalreserve.gov and read the key objectives of the Fed to stabilize the
macroeconomic crises of the US economy (you have to look for the links from the home page of the Fed’s websiste- click on the tab “About the Fed” and read through the contents). Based on the information on monetary policy objectives and tools, answer the following question 3A.

For: Policy objectives/purpose: The specific url under the tab about the Fed (Item2):
http://www.federalreserve.gov/pf/pf.htm

For Policy tools: The specific url under the tab Monetary Policy is (the listed thread is
policy tools): http://www.federalreserve.gov/monetarypolicy/default.htm

Under that, find the link for Mission

3A) What are the key objectives and what are the conventional monetary policy tools
does the Fed use to achieve those objectives?

Explanation / Answer

key objectives of the monetary policy are
1. to make the optimum credit availability in the economy
2. to keep the general price level of the economy moderate thereby avoiding the inflation and deflation scenarios.
3. to keep the supply of money in the economy sustainable.

tools used by FED are
1. open market operations: under this the FED issue government bonds or buy back the bonds in the money market thereby controlling the liquidity scenario and overall volatility in the monet market.

2. reserve requirement: under this the FED mandates every commercial bank to keep certain percentage of their deposits as reserves with the FED. This percentage is usually determined by the FED and this tool is greatly used to check the lending power of the banks and their liquidity.

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