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The Federal reserve handles money supply through four main levers, all aimed at increasing or decreasing the '''federal funds rate''', which is the rate at which banks make overnight loans to each other. This is what is referred to when it is said that the fed is 'changing interest rates.' These operations aim either to effect supply or demand.<ref>Mishkin, Frederic S., and Apostolos Serletis. ''The Economics of Money, Banking and Financial Markets''. 4th Canadian ed. Toronto: Pearson Addison Wesley, 2011. | The Federal reserve handles money supply through four main levers, all aimed at increasing or decreasing the '''federal funds rate''', which is the rate at which banks make overnight loans to each other. This is what is referred to when it is said that the fed is 'changing interest rates.' These operations aim either to effect supply or demand.<ref>Mishkin, Frederic S., and Apostolos Serletis. ''The Economics of Money, Banking and Financial Markets''. 4th Canadian ed. Toronto: Pearson Addison Wesley, 2011. | ||
(I rely in this section mainly on this work, but intermixed with notes I took in an undergraduate course on Banking) </ref> | (I rely in this section mainly on this work, but intermixed with notes I took in an undergraduate course on Banking; diagrams are from this textbook) </ref> | ||
==== Open Market Operations (Supply) ==== | ==== Open Market Operations (Supply) ==== | ||