Basic Functions performed by the Central Bank in order to control the Money Supply in an economy?

The Fed monetary policy consist of raising and lowering the Fed rate to combat inflation and increase growth.





The Fed rate, or federal funds rate is the interest rate at which banks borrow money at the Federal Reserve or lend it to other banks.





What happens when the Fed lowers this rate? Why does it reduce the effects of a recession?





Banks will have access to fresh money at a lower cost, meaning that they have themselves more money available to lend out, and also at a lower cost. This is could for all participants in the economy: industrial companies have it easier to find money to invest, mortgages go down, etc.





As a result the economy will expand, make more profit in the long term. The stock market of course anticipates this and goes up.





On the other hand, lending out dollars will return a lower interest rate than before: the dollar goes down. This again will help economic growth as well, as American exported goods become less expensive in other currencies.