Monetary Tools and Expansionary Activities

1. Which of the monetary tools available to the Federal Reserve is most often used? Why? 2. Describe how expansionary activities conducted by the Federal Reserve impact credit availability, the money supply, interest rates, and security prices. 3. Suppose the Federal Reserve purchases $10 billion worth of foreign currency in exchange for deposit accounts at the Federal Reserve. Show the changes that result from this transaction on the Fed’s balance sheet. Cite references to material that you use in preparing the essay. Your essay will be graded on the following: Mentions at least three monetary tools. Describes how expansionary activities conducted by the Federal Reserve impacts each of these elements: credit availability, the money supply, interest rates, and security prices. Show the changes that result from this transaction on the Fed’s balance sheet. Used at least one example in the essay. Organization Grading Guidelines: Presentation is very effective and presented in a logical format with a clear beginning, middle, and end. There is a clear statement of ideas and smooth transitions. The writer has stated the main idea clearly and has provided relevant details. The main idea is clearly conveyed in a presentation that is highly relevant and interesting. The student provides evidence of thoughtful input. Details are rich and appropriate. Spelling, punctuation, and capitalization are virtually always correct.