Description 
Your goal in this tool is to gain a better understanding of simple monetary policy. As a monetary policy maker, you have three principal tools at your disposal: the reserve requirement, the discount rate, and open market operations.

You can change the reserve requirement from 5% to 20% in increments of 1%.

You can change the discount rate from 1% to 15%, also in increments of 1%. The pointer marked "ff" indicates the federal funds rate. For the purpose of this tool, the fed funds rate is a given--you cannot change it. Remember that the effect of a change in the discount rate will depend somewhat on the federal funds rate.

Open market operations (OMO) are the most powerful tool in your monetary arsenal. Through OMO, the Fed can increase or decrease the money supply with some precision. By choosing a positive value for OMO, you are buying bonds in that amount, thus injecting money into the economy. By choosing a negative value for OMO, you are selling bonds in that amount, thus removing money from the economy.

Apply your knowledge of monetary policy to see what effect these policy tools have on the macroeconomy.
 
 
 
 
 

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