The Federal Reserve board controls the monetary policy whereby they control the money supply. Firstly, they can change the reserve requirement for various banks and institutions. A certain percentage of depositors to the banks’ must be kept by the banks. This aims at maintaining a required level of liquidity by the banks. The reserve requirement can be reduced to stimulate the economy as this allows banks to lend more of their money to various individuals and companies including Starbucks. The Federal Reserve can also change the discounting rates to promote the economy in business cycles, (Mankiw, 2015). To stimulate the economy, the body reduces the discounting rates and it increases the rate when it wants to contract the economy. Federal open market committee can also be used in an aid to control the economy. It purchases and sells the government securities in the secondary markets so as to control the money supply in the economy. In order to stimulate the economy, the Federal Reserve will reduce rates of
The Federal Reserve board controls the monetary policy whereby they control the money supply. Firstly, they can change the reserve requirement for various banks and institutions. A certain percentage of depositors to the banks’ must be kept by the banks. This aims at maintaining a required level of liquidity by the banks. The reserve requirement can be reduced to stimulate the economy as this allows banks to lend more of their money to various individuals and companies including Starbucks. The Federal Reserve can also change the discounting rates to promote the economy in business cycles, (Mankiw, 2015). To stimulate the economy, the body reduces the discounting rates and it increases the rate when it wants to contract the economy. Federal open market committee can also be used in an aid to control the economy. It purchases and sells the government securities in the secondary markets so as to control the money supply in the economy. In order to stimulate the economy, the Federal Reserve will reduce rates of