The Federal Reserve Bank of the United States can use at least two mechanisms to impact the supply of money. According to an essay published online on the How Stuff Works.com website, the most effective tool that the Federal Reserve Bank uses to control the supply of money involves the buying and selling of government securities in its open market operations. The Federal Reserve Bank buys securities when it wants to increase the flow of money into the economy and it sells securities when it wants to reduce inflows of cash and credit. Another mechanism the Federal Reserve Bank uses occasionally involves changing the reserve requirements for commercial banks. Banks must have sufficient cash on hand to meet any foreseeable demand for cash made by depositors. The specific amount of research is dictated by the Federal Reserve Bank. By increasing this reserve, the Federal Reserve Bank has the ability to pull money out of the economy and by reducing the amount of required reserves the Federal Reserve Bank can inject money into the economy. This tool is rarely used because it can have a dramatic impact on the economy far beyond that which was intended by the Federal Reserve Bank (Obringer).
According to an essay published online on the Investopedia.com website, a primary market is a market that issues new securities on an established stock exchange. A primary market for stock is a place where potential investors have their first opportunity to purchase shares of stock. Once the initial sale of stock, sometimes referred to as an Initial Public Offering, has been completed, additional trading involving the buying and selling a stock is conducted on what is referred to as the secondary market. The secondary market is where the bulk of trading occurs. The secondary market is the type of stock trading that people are most familiar with involving established companies with shares of stock which investors can buy or sell thro...