CONTENT STATEMENT
The Federal Reserve System uses monetary tools to regulate the nation’s money supply and moderate the effects of expansion and contraction in the economy.
Content elaboration
Monetary policy involves the Federal Reserve System making decisions about the nation’s money supply.
To encourage economic growth, the Federal Reserve System can:
- reduce the amount of money that banks must have on reserve and not use to make loans;
- buy bonds; and
- take action that results in lower interest rates.
To slow economic growth the Federal Reserve System can:
- increase the amount of money that banks must have on reserve and not use to make loans;
- sell bonds; and
- take action that results in higher interest rates.
EXPECTATIONS FOR LEARNING
Explain how the Federal Reserve System uses monetary policy to regulate the nation’s money supply and encourage or slow economic growth.