1. MONETARY POLICY Conducted by: the Federal Reserve System

2. Tools of the Federal Reserve  Fractional Reserve System (reserve ratio)  Reserve Requirement  Excess Reserves ( may be loaned out to businesses/private individuals; increases the money supply)

3. Deposit Expansion Multiplier  1/reserve ratio = multiplier  Multiplier X Excess Reserves = Total money creation

4. Other Tools  Discount Rate  Federal Funds Rate  Open Market Operations (conducted by the FOMC)  Buying bonds from public increases money supply  Selling bonds to public decreases money supply

5. Expansionary Monetary Policy (loose)  Used to resolve recessions, unemployment, and problems of slow productivity  Discount Rate & Fed. Funds Rate decreases  Reserve Ration lowered  Open Market Operations- buy bonds.

6. Contractionary Monetary Policy (tight)  Used to resolve problems associated with inflation  Discount Rate & Fed Funds Rate increased  Reserve Ratio raised  Open Market Operations – sell bonds