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Created with Fabric.js 1.4.5 Bank Loans Tools they use Monetary Policy OpenMarketOperations Monetary policy is what the federal reserve (the U.S. Bank) does to try tobalance the money supply, interest rates, and other economical issues in the U.S. What does it mean? Open Market Operations The tool the fed uses the most. OMO's are the purchase or sale of government bonds. When theysell bonds (contractionary fiscal policy), the money supply, excess reserves, and bank loans go down, while interest rates go up. The opposite happens when they buy bonds (Expansionary fiscal policy). When the economy is in a recession, the fed buys more bonds. When the economy doing well, then the feed will sell more bonds Discount Rate Economy in expansion Economy in recession double click to changethis text! Drag a cornerto scale proportionally. double click to changethis text! Drag a cornerto scale proportionally. ExcessReserves double click to changethis text! Drag a cornerto scale proportionally. Money Supply InterestRates InterestRates InterestRates ExcessReserves ExcessReserves Bank Loans Money Supply Money Supply Bank Loans How do they do it? ReserveRequirement Sell Bonds(Small Bucks) Buy Bonds(Big Bucks) The reserve requirement is the percentageof reserves the fed requires banks tohave. When rates go higher, banksaren't able to loan as much moneyand the money supply decreases.When rates go lower, banks are ableto loan out more money and moneysupply increases. This tool is used rarely When banks borrow money from the fed, the fed charges them interest, which is called the discount rate. If the fedincreases the discount rate, banks make fewer loans andmoney supply decreases. If the fed increases the discountrate, banks make more loans and money supply increases
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