If the Fed wants to slow the rate of consumer and investor spending, it would restrain the growth of money and credit. The decrease in money available in the economy leads to a decrease in investment and spending as the availability of capital decreases and it becomes more expensive to obtain. This limiting of access to capital slows down economic growth as investment decreases.
When they want to tighten the economy, raise interest rates and slow spending.
By a sale of bonds, by selling bonds the fed takes money out of the economy in exchange for bonds, which are paid back at a later date.
Use a monetary policy to decrease the money supply.
when money supply is increased, interest rates decrease
Increase or decrease the money supply
According to the great Milton Friedman, a decrease in the money supply is was a major contributor to The Great Depression. As far as I can tell, the only reason the FED would do this is to cause massive sell offs of assists in order for people who are in cahoots with the FED to buy up everything on discount.
An increase in the money supply shifts the money supply curve to the right. If you look on your graph, you will see that an increase in money supply will cause the interest rate to decrease. Here's why: Fed increases money supply-->excess supply of money at the current interest rate -->people buy bonds to get rid of their excess money-->increase in the prices of bonds --> decrease in the interest rate.
Use a monetary policy to decrease the money supply.
decrease
when money supply is increased, interest rates decrease
Increase or decrease the money supply
According to the great Milton Friedman, a decrease in the money supply is was a major contributor to The Great Depression. As far as I can tell, the only reason the FED would do this is to cause massive sell offs of assists in order for people who are in cahoots with the FED to buy up everything on discount.
An increase in the money supply shifts the money supply curve to the right. If you look on your graph, you will see that an increase in money supply will cause the interest rate to decrease. Here's why: Fed increases money supply-->excess supply of money at the current interest rate -->people buy bonds to get rid of their excess money-->increase in the prices of bonds --> decrease in the interest rate.
Because that is how FED removes money from circulation, thus reducing money supply. The opposite would be buying securities in open market operations in order to increase money supply.
Fed
Money supply.
If the Fed wants to increase the money supply, they should buy the government bonds. The actions that can be used by the Fed to increase the money supplied is called the monetary policy.
The primary way the Fed controls the supply of money is by:
If the Fed raises the discount rate from five percent to ten percent, there would be less money supply. This is because it is a contractionary monetary policy.