1. Discuss the three tools of monetary policy and how each would be used to fight inflation.

The article identifies the three tools of monetary policy as the discount rate, the reserve requirement, and open market operations. Each is used to influence the interest rate. During periods of inflation the Fed would want to raise the interest rate in an attempt to slow down economic activity. The discount rate is the rate the Fed charges member banks to borrow reserves from the fed. To fight inflation the Fed would increase the discount rate. The reserve requirement is the percent of deposits that commercial banks must hold as reserves with the Fed.

In order to fight inflation the Fed would increase the reserve requirement. Finally, the Fed can use open market operations where they buy and sell securities in the open market to influence the interest rates. To combat inflation the Fed would sell securities which will remove reserves from the banking system and increase interest rates. All of these policy actions are part of what economists call tight money policy.

2. Visit http://research.stlouisfed.org/publications/review/03/11/poole.pdf for a discussion of the Fed's transparency. Discuss what is meant by the Fed's transparency.

In his article, Fed's Transparency: How not Whether, William Poole speaks about how the public wants to know the implications of monetary policy and how it will affect future economic conditions. However, in the past they have been confounded by the secrecy of the central bank disclosure. This tendency does seem to be abated somewhat in recent years and even declared a goal by Mr. Bernanke. Monetary policymakers have begun to open up the process and give more straightforward accounts of what they are doing. Some of the new transparency is because of a growing interest in accountability and part because of a belief that their policy actions will be more effective if the market understands them better. Poole uses the term "transparency" as shorthand for "conveying accurate information including all the information market participants need to form opinions on monetary policy that are as complete as possible."