00:01
The federal reserve policymakers use several different tools to influence the money supply and interest rates.
00:06
The three primary tools used are the operations of the federal open market committee, the fomc, reserve requirements, and the discount rate.
00:15
Describe each of these tools regarding how they are used by the federal reserve to influence the money supply and interest rates.
00:26
So the operations of the federal open market committee, the fomc, the federal open market committee, is a branch of the federal reserve system.
00:40
The fomc determines the direction of monetary policy by directing open market operations.
00:48
It is specifically in charge of omos, which entails buying and selling government securities.
00:55
For example, in order to tighten the money supply and decrease the amount of money available within the banking system, the fed would offer the government securities for sale.
01:06
Securities that are bought by the fomc are deposited in the fed's system open market account, soma, which consists of a domestic and a foreign portfolio.
01:20
The reserve requirements are the amount of funds that a bank holds in reserve to ensure that it's able to meet liabilities in case of sudden withdrawals.
01:32
So, for example, if the reserve requirement is 10%, and i go and deposit $100, then the bank would be required to hold $10 of that in their reserves and they could loan out the other 90.
01:46
And that's how they make their money is when they loan out and on interest and things of that nature.
01:50
So that reserve requirement is the percentage that the bank has to hold in order to meet liabilities in case of sudden withdrawals...