How the Federal Reserve Manages Money Supply

The Federal Reserve was created to help reduce the velocity and magnitude of an economic downturn. In 1913, the Federal Reserve was originally formed to prevent the money supply and credit from drying up during recessions.

One of the biggest tools the Feds have is the ability to loan millions or billions or even trillions of dollars to banks that would then be induced to lend more money.

The Federal Reserve's top duties today are to manage the bank reserves and money supply to allow the economy to expand securely. They fulfill these duties by changing reserve requirements (when needed), change the discount rate (when needed), and perform open market operations like buying and selling government securities. 

The Federal Reserve has a vital role in the US economy. When the economy is in a downturn, the Feds increase the supply of money to spur growth. When inflation is threatening, the Feds reduce the threat by shrinking the supply. 

By the Feds managing money supply, they are able to control the economy and help the U.S. go through the business cycle successful.