Video 3

Video 3 talks about the the Fed's tools of monetary policy. There are 2 categories in which the tools fall in: Expansionary and Contractionary. Expansionary is easy money, while contractionary is tight money. The FED has control over the Reserve Requirement, which is the percentage of the banks total deposits. Lowering this makes more money available. This is not used often because it could corrupt the whole system. The next one is discount rate, which is the rate the banks can borrow from the fed. They pay it back. The fed is a lender of last resort. The third one is buying or selling government bonds and securities. This is not a form of stocks. To expand money supply, the fed buys bonds. To lower the money supply, the fed will sell bonds.