Question

Explain why the Federal Reserve has more control over the monetary base when it uses open market operations than when it uses discount window lending.

Answer 1

Answer The fedral fund rate is the percentage of interest theit bunes constantly charge each other as louns. This constant exchange of money satisfies the demand of the customers while keeping the banks in excess of cash at their jesene de galeria The Federal Reserve regulates the money supply of deposits en banks, as well as trading securities in open markets that are available to lend to companies or clients using this system of open market buying the Federal Reserve's focus is to call the fedral fund its process called open market Opercetions. The feel offers the fincencice company the following types of discount louns: primary creelit, secondairy Creeli't cmel be permanent seasonal creclit,

The Feel generuiy gives primary credit to organizations with good financial Conclitions on a short term basis. If an institution is meeting the pumasy quauification, it may try for a re seconclusy loun, which has a slightly higher interest rate than the primary. Helps smell lenclers to provide loans to farmers, stuclents and other seasoncel lenders. The fed cuso uses a discount window to change monetary pouicy. for escample, clis counts. ang increased each time a money supply is desired. It cuso raises the feel fund rate aut that time. Therefore, banks get less money to lend omd economic growth slows down. This is cellleel contructionary currency policy. The Feel has many other tools that

it uses to extend bank loans, And one of the most widely used Dools és open market operations. Bienia. secun'ties are purchaseel to increase credit. And it gets creclit space on the balance sheet at the bank's end. This gives a lot of money to lence to the bank. fitto sono stati và CNTT and people to