The Federal Reserve System directly affects Monetary Policy by using 3 specific tools:

 1. Determination of Reserve Requirements; 

2. Open Market Operations; and 

3. Discounting Operation.

• Briefly describe the Discounting Operation tool. Then, fully describe what constitutes an effective expansionary policy in the use of this tool, followed by a full description of what constitutes an effective contractionary policy in the use of this tool.
• Briefly describe the Determination of the Reserve Requirements tool. Then, fully describe what constitutes an effective expansionary policy in the use of this tool, followed by a full description of what constitutes an effective contractionary policy in the use of this tool.
• Briefly describe the Open Market Operations tool. Then, fully describe what constitutes an effective expansionary policy in the use of this tool, followed by a full description of what constitutes an effective contractionary policy in the use of this tool.

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Reserve requirement which is mainly used as a tool by the central banks to determine the reserve of ... View the full answer