The term “Monetary Policy” refers to the actions taken by the Federal Reserve to control and supply the cost of money in the United States. These efforts preserve the economy and promote stability; and this responsibility was given to the Federal Reserve through the Federal Reserve Act of 1913. There are three tools of monetary policy which the Federal Reserve controls--open market operations, the discount rate, and reserve requirements. Using these tools, the Federal Reserve influences the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate.