The most important aspect of the Federal Reserve is its' use of monetary policy on the economy. Monetary policy refers to what the Federal Reserve does to influence the amount of money and credit in the US economy. Changes in the money supply and credit, affects interest rates and the stability of the economy. There are goals that set by the FOMC in order to make monetary policy effective. The goals of monetary policy are to promote continual economic growth, full employment, stable prices, and a consistent pattern of international payments. Through monetary policy, the FRS is able to maintain stable price levels, thus endorsing economic growth and full employment. When there is instability in the economy, the FRS must implement monetary policy. So when it wants to change the money supply and interest rates, the FRS usually uses open-market operations. Open market operations involve the buying and selling of U.S. government securities bonds. The term "open market" means that the FRS doesn’t decide on its own which securities dealers it will do business with. Instead, the choice comes from an "open market" in which the various securities dealers that the FRS does business with, the primary dealers, compete on the basis of price. The FRS’s goal in trading the securities is to affect the federal funds rate, the rate at which banks borrow reserves from each other. When it wants to increase reserves, it buys securities and pays for them by making a deposit to the account maintained at the FRS by the primary dealer’s bank. When it wants to reduce reserves, it sells securities and collects from those accounts. The FRS doesn't want to increase or decrease reserves permanently, so it usually engages in transactions reversed within a day or two. That means that a reserve today could be withdrawn tomorrow afternoon, only to be renewed at some level several hours later. These short-term transactions are called repurchase agreements (repos); the dealer sells the FRS a security and agrees to buy it back at a later date. Open-market operations are flexible and thus, the most frequently used tool of monetary policy. There are two more primary tools of monetary policy: the discount rate and the reserve requirement. The dis

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