To control the money supply in economy, the monetary policy of the US Federal Reserve and the central bank of the US use some exigent tools. These tools are: open market operations, discount rates and fractional reserves, and many other.
Open Market Operations
These are one of the most important tools to increase money supply. These tools are used by the Fed to buy treasury securities that belong to the government that in turn stimulate a gentle increase in money supply in small percentages over a particular time period. Treasury securities comprises of treasury bonds having a life span of ten years whereas the life span of treasury notes consist of two to ten years. Treasury bills mature in one or less than one year and these are the most suitable tool used by the Fed.
Discount Rate
Discount rates are the second tools used by the Fed to increase money supply. Bank borrows money from the Federal Reserve to perform day to day activities. The interest rates on those loans are called discount rates. Read the full story
