Money and Monetary Policy
It’s hard to talk about economics without talking about money. In a capitalist society in particular, things tend to come back to money. The concept of monetary policy usually refers to the actions of a centralized bank. In the United States this would be the Federal Reserve, also known as “the fed.” The job of the fed is to take actions … Keep Reading → to impact how much money is available and what it costs to borrow. The fed has a few tools at its disposal. The first is what is known as open market operations. This is the buying and selling of government securities. These transactions take place on the open market and directly affect the federal funds rate, which is how much banks charge other banks for loans. Another tool of the Federal Reserve is Discount Window Lending, which is money the fed can loan directly to banks. The final weapon of the fed is the Reserve Requirements which banks are required to have. With these tools at their disposal, the fed can influence the behavior of banks and consequently the money available to the general public.
