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What tools does the Federal Reserve have to pursue monetary policy? Which tool does it use most?

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Darryn D'Souza
Darryn D'SouzaLv10
28 Sep 2019

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Step 3: review what open market oprations are and how they can affect the money supply. Why does the Federal Reserve rely on this monetary policy tool to change the money supply. 20 points

Which monetary policy tool is used most often by the Federal Reserve?

The U.S. Federal Reserve is the central bank of the United States. It has many roles in the economy, but one of its key roles is conducting monetary policy.

  1. What is monetary policy?
  2. Suppose the Fed wants to close an inflationary gap. How could it use each of the three tools of monetary policy to close the gap?Ā 
  3. Using the monetary policy tool the Fed employs most often, the Fed closes an inflationary gap. Describe the steps the economy goes through to move to the new equilibrium output and price level. Use graphs with your answer and be sure to label everything completely.

Ā 

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