Reading and answers the question: It is the role of the Federal Reserve, known simply as the Fed, to control the supply of money in the U.S. through its system of twelve regional Federal Reserve Banks, each with its own Federal Reserve District Bank. Many commercial banks belong to the Federal Reserve 5 System and as members must follow the Fed's reserve requirements, a ruling by the Fed on the percentage of deposits that a member bank must keep either in its own vaults or on deposit at the Fed.
If the Fed wants to change the money supply, it can change reserve 10 requirements to member banks; for example, an increase in the percentage of deposits required to be kept on hand would reduce the available money supply. Member banks can also borrow money from the Fed, and
an additional way that the Fed can control the money supply is to raise or lower the discount rate, the interest rate at which commercial 15 banks borrow from the Fed. 2An increase in the discount rate would reduce the funds available to commercial banks and thus shrink the
money supply. In addition to using reserve requirements and the discount rate to control the money supply, the Fed has an additional powerful tool: open-market operations.
1. According to the passage, the main purpose of the Federal Reserve System is to
2. When the Fed controls the percentage of deposits kept on hand by member banks, it controls
3. The passage implies that a lowering of the discount rate would lead to
4. The paragraph following the passage most likely discusses