3 Tools of Monetary Policy
There are three main tools of monetary policy – open market operations, reserve requirements, and the discount rate. These are decided by central banks such as the Federal Reserve.
Monetary Policy
Monetary Policy refers to the control and supply of money. Central banks such as the Fed, the ECB, and the Bank of England control this in its respective nations. The level of control includes the ability to create money and purchase financial assets, as well as setting interest rates.
Exchange Rate: Definition, Causes, Effects & Types
An exchange rate is the value by which two currencies are swapped with each other.
Central Bank: Definition, Objectives & Functions
A central bank controls the supply of money as well as how it reaches the consumer.
How Does Quantitative Easing Work
Quantitative Easing works in 5 sequential steps: Central Bank Creates Money, Central Bank Purchases Debt, Interest Rates Decline, Businesses/Consumers Borrow More, and Businesses/Consumers Spend More.
Discount Rate in Economics
The discount rate is the interest rate by which the central bank charges commercial banks to borrow money or cover short-term liabilities. In other words, the central bank lends money to the likes of Goldman Sachs, and in turn, they pay interest of that loan. The interest paid is known as the discount rate.
