The Tools of Monetary Policy

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In this step, you'll learn about the different tools of monetary policy available to a nation's central bank. The reserve requirement is defined as the percentage of a bank's total deposits from households that must be kept on reserve at the Federal Reserve Bank. Open market operations involve the US Fed either buying or selling bonds from commercial banks and households in order to increase or decrease the supply of money in the economy. The discount rate is the interest rate on short-term loans from the Federal Reserve to commercial banks.