QUESTION: The U.S. Federal Reserve System (the Fed) is often referred to as the nations central bank. To perform its functions the Fed has several tools at its disposal. Identify the tools the Fed uses to control the money supply, and explain how each tool works and what it accomplishes. Your score is based on:

RUBRIC:

Development of Ideas 20%

-Response clearly and accurately identifies the tools used by the Fed to control the money supply. Responses will vary, but most likely include tools such as reserve requirements, interest rate controls, and open-market operations. Response thoroughly and accurately explains how the Fed uses the different tools to control the money supply. Effective responses will vary but are likely to mention most of the following: The Fed uses the reserve requirements to make changes to the overall supply of money in the economy. High requirements mean that banks have less money to lend and the money supply is reduced. Conversely, low requirements permit the supply to expand. The Fed manipulates interest rate controls such as the discount rate and the federal funds rate to exert control over the money supply. A decrease in the discount rate makes it more expensive for banks to borrow money, thereby limiting the money supply. Conversely, low rates encourage borrowing and lending and expand the money supply. Although the Fed cannot directly manipulate the federal funds rate, it can control the supply of reserves to create the desired rate. In open-market operations, the Fed buys securities (usually U.S. treasury notes or short-term bonds) to expand the money supply and sells securities to contract the money supply.

Organization 20%

-Organization is clear and helps the reader understand the respondents point of view. Transitions connect concepts and guide the reader. Contains an effective introduction and conclusion.

Conventions 20%

-Response does not contain a significant number of errors in grammar, spelling, punctuation, or word choice. Errors do not interfere with the readers understanding. Response demonstrates variety in sentence structure. Demonstrates sophistication and skill with a wide variety of conventions.

Voice 20%

-Tone is appropriately sincere and engaging. Response demonstrates clear awareness of the responses audience. Response provides a strong sense of the writer through his/her descriptive and figurative language.

Focus and Coherence 20%

-Response persuasively justifies its conclusions through logic, examples, and illustrative language. Response includes varied examples that are relevant and effectively illustrate the trends cited. Conclusions are clear and precise.