TOOLS OF FED POLICY OPEN MARKET OPERATIONS DISCOUNT LOANS CHANGES IN REQUIRED RESERVES

Open Market Operations

. FED buys our securities from us. Pays for them by crediting our account

We lend out what we have in excess reserves

As checks clear against our bank we get Initial increase in deposits $500,000

Discount loans

We make loans out of the $20,000 borrowed from the FED

checks clear against our bank … Initial increase in deposits $20,000

Changes in rD

change rD from 10% to 5%

checks clear against our bank we end up with … Initial increase in deposits $50,000