After reading all the available information carefully, prepare a two page (double-spaced) essay and answer the following questions:

1. Which of the monetary tools available to the Federal Reserve is most often used? Why?
2. Describe how expansionary activities conducted by the Federal Reserve impact credit availability, the money supply, interest rates, and security prices.
3. Suppose the Federal Reserve purchases $10 billion worth of foreign currency in exchange for deposit accounts at the Federal Reserve. Show the changes that result from this transaction on the Feds balance sheet.

Cite references to material that you use in preparing the essay.