Notes on monetary policy

Increases the money supply...

• OMO: buys bonds 
• when the fed buys bonds, a demand is created. Banks can make loans after they set aside the required reserves and the money supply is increased.
• Discount rate: decreased
• When the DD is lower, banks can borrow funds from the fed at a lower cost. Banks have more excess reserves to make loans and money supply is increased.
• Reserve requirement: decreased
• When the triple "R" is lower. Banks have more excess reserves to make loans and money supply is increased.

Decrease money supply...
OMO: Sells bonds
when the fed sells bonds, the buyers use their funds from the DD. Banks have fewer excess reserves to lend money and money supply demand is increased.
Discount rate: increased
when the DR is higher, banks will borrow less at a higher cost. Make fewer loans and supply money is decreased
Reserved requirement: increased
when the triple "R" is higher, banks will have fewer excess reserve to make loans and money supply is decreased.

1. OMO, fed buys/sells to public bank.
2. If the fed sells the bonds, the economy gets the equivalent of what is considered to be bond certificates. The fed gets the cash and removes it from the economy. Thus, money supply is decreased.

If the fed buys bonds = economies get the cash and the fed gets back its bonds.