Monetary Policy Scenarios

A pandemic has swept the nation! People are afraid to take out loans but the Federal Reserve wants more money put into the economy. What can the Fed do to encourage people to take out loans?

• Increase discount rates

• The Fed buys government securities

• Decrease discount rates

• Increase Reserve Requirements

Uh Oh! The Federal Reserve gave out to much money! What can the Fed do to decrease the money supply?

• Increase the Reserve Requirement

• Decrease the Reserve Requirement

• Decrease the Discount Rate

• Open Market Operation:

  The Fed sells government securities

The economy is expanding to quickly and inflation is occurring! What can the Fed do to slow the economy?

• Open Market Operations:

  Buy Government Securities

• Lower the Reserve Requirement

• Open Market Operations:

  Sell Government Securities

• Lower the discount rate

There's to much cash in the economy because citizens keep taking out loans! What can the Federal Reserve do to discourage people from taking out loans?

• Let the citizens keep borrowing!

• Open Market Operations:

  Sell government securities

• Lower the Reserve Requirement

• Increase the Discount rate

We need more money in the economy! What can the Federal Reserve do to allow more money to be available for citizens?

• Open Market Operations:

  Sell Government Securities

• Increase the Reserve Requirement

• Lower the Reserve Requirement

• Increase the Discount Rate