Money & Banking | Functions of The Federal Reserve System & The Tools That The Fed Uses to Control The Money Supply

Discuss the functions of the Federal Reserve System, and describe the tools that the Fed uses to control the money supply.

Possible Answer: The Fed is the nation’s central bank. As the government’s bank, it produces currency and lends money to the government. As the bankers’ bank, it lends money to member banks, stores required reserve funds for banks, and clears checks for them. The Fed’s Open Market Committee is responsible for formulating the monetary policies to promote economic stability and growth by managing—increasing or decreasing—the nation’s money supply. Among its tools for controlling the money supply, the Fed specifies reserve requirements, it sets the discount rate at which it lends money to banks, and it conducts open-market operations to buy and sell securities. It also exerts influence through selective credit controls.

Source: Business Essentials, 8e (Ebert/Griffin) – Global Edition