Monetary Policy
- Open Market Operations (OMO): When the Fed buys or sells bonds.
- Discount Rate: FDIC member banks and other eligible institution may borrow short term loans from the Fed (bank borrow from the Fed)
- Federal Funds Rate: FDIC member banks loan each other overnight funds. (banks borrow from other banks)
- Reserve Requirement: The required amount a bank must keep on hand by law
- In a recession
- Open Market Operations: The Fed buys bonds (Increase Reserve)
- Discount Rate: Decrease
- Reserve Requirement: Decrease
- Federal Funds Rate: Decrease
- Money Supply: Increase
- In an inflation
- Open Market Operations: The Fed sells bonds (Decrease Reserve)
- Discount Rate: Increase
- Reserve Requirement: Increase
- Federal Fund Rate: Increase
- Money Supply: Decrease
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