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Identify and explain the three ways that the Federal Reserve controls the money supply. What is...

Identify and explain the three ways that the Federal Reserve controls the money supply. What is the impact on business when the money supply is increased? What is the impact on business when the money supply is decreased?

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Answer #1

The Federal bank controls the money supply by increasing or decreasing the discount rate , buying and selling the bonds in the market, and manipulating the reserve requirement.

When they have to increase the money supply they decrease the reserve requirement and discount rate, they do open market purchasing.

When they have to decrease the money supply they increase the reserve requirement and the discount rate and they sell the bonds in the market.

WHen the money supply is increased the interest rate falls and business borrow more loan and invest when the money supply is decreased the interest rate rises and that reduce the investing.

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