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Explain the 4 Tools of Monetary Policy and how the Central Bank impacts the overall economy....

Explain the 4 Tools of Monetary Policy and how the Central Bank impacts the overall economy. Make sure to include a graph of how changes in the money supply impact interest rates.

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Answer #1

The four major tools of monetary policy are :

1) Open-Market Operations,

2) Changing The Reserve Ratio,

3) Changing The Discount Rate, And

4) The Use Of Term Auction Facility. Monetary Policy

A key role of central banks is to conduct monetary policy to achieve price stability (low and stable inflation) and to help manage economic fluctuations. The policy frameworks within which central banks operate have been subject to major changes over recent decades.

Expansionary Monetary Policy: Increasing the MS to decrease UE:

Contractionary Monetary Policy: Decreasing the MS to decrease IN:

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