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Essay text:
The Second tool the Fed uses to control the money supply is the Required Reserve Ratio (RRR). The Fed mandates a percentage (ratio) of deposits that bank are required to hold in reserves and not lend out. The Third tool the Fed uses to control the money supply is Open Market Operations (OMO). OMO includes Treasury Bills (T-bills), bonds, securities, and other instruments sold to investors by the Fed.
The Spread between the DR and the FFR
The money supply is affected by the by spread between the DR and the FFR If the Fed DR is lower than the FFR charged by other banks, it is more probable that banks will borrow from the Fed...
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