A decision by the federal reserve to change reserve requirements for banks is an example of monetary policy. Central bank of a country uses a set of instruments called monetary policy to regulate the total amount increase the amount of money in circulation, promote economic growth, and put policies in place like modifying interest rates and bank reserve requirements.
With a twin purpose to maximise employment and contain inflation, the Federal Reserve Bank of the United States carries out monetary policy. Reserve requirements, the discount rate, and open market operations are the three monetary policy tools that the Federal Reserve frequently employs.
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