1)How can you describe the three major tools of monetary policy?

2)How do open market operations work exactly?

3)What are revenue, deficit, and debt, and how does it play a role in the U.S. government?

1)

The implementation of monetary policies is done by central banks. The policies are implemented through the following tools:

• Open market operations. The operation is when the central bank buys or sells securities from private banks. The operation aims at adding money to the banks or holding money from the banks. When it sells securities, it holds money from the bank and the banks have no money for lending. This change the money supply in the economy.
• Change reserve requirement. This is a central bank requirement that all commercial banks should have a set minimum amount of money reserved for them. An increase or decrease of this minimum amount changes the money supply in the economy. Increasing the amount reduces the banks' amount and banks have less to lend, while a decrease of the minimum amount increases the amount the bank can lend.
• Interest rates adjustments. The central bank adjusts interest rates through changing discount rates. The discount rate is the borrowing rates that central bank extends to its members or commercial banks. An increase in discount rates increases lending interest rates.

2)

Open Market Operations(OMO's) are activities within the Fed, overseen by the Federal Open Market Committee with a purpose to maintain inflation and influence economic growth.

Open Market Operation works through the buying and selling of government treasury securities among financial institutions within the Fed to control the aggregate money supply.

The buying of government securities increases the money supply in banking systems and within an economy, which eventually impacts on having low-interest rates of borrowing. These activities result in expansionary monetary policies.

The selling of government securities among the Fed member banks reduces the aggregate money supply in both banks and economy. Thus, these influences high-interest loan rates resulting in contractionary monetary policies.

3)

Revenue is the money that the government takes in, mainly from taxation.

Deficit is the year to year difference in what the government spends and the revenue the government makes.

Debt is the accumulation of yearly deficits and surpluses over time.

Any act of the government to increase or decrease spending or taxation will affect revenue, deficit, and debt. For example, if the government decides to cut taxes, revenues will decrease, the deficit will increase, and the debt will increase holding all else constant.