Monetary Policy (Mba-501)
Monetary Policy
The Federal Reserve Bank constitutes the central banks in the United States that has three tools of monetary policy they can control the money supply to influence interest rates and total level of spending in the economy to maintain price-level stability, full employment and economic growth. They are Open-market operations, the reserve ratio and the discount rate. The Fed's Open-market operations consist of the buying of government bonds from, or the selling of government bonds to, commercial banks and the public. Open-market operations are Fed's most important instrument for influencing the money supply (McConnell-Brue, 2004, p.270). When Federal Reserve purchase government bonds or securities from commercial banks, increase the reserves of the commercial banks, then increases the lending ability of the commercial banks and they sell the securities, decrease the reserves of the commercial banks. Buying bonds increases the reserve banks will hold, this enables......
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