Discount lending by the Fed involves making loans to commercial banks at a discount, which usually has little or no effect on interest rates (Mishkin & Eakins, 2012). However, this tool is still used in monetary policy as a means to control the flow of money and help banks that have liquidity problems or difficulty meeting reserve requirements (Federal Discount Rate, 2007). Reserve requirements are the third of three monetary policy tools used by the Fed. By increasing reserve requirements, the Fed is raising the interest rate. Alternatively, the Fed could choose to lower reserve requirements, which would also reduce interest rates (Mishkin & Eakins, 2012). In conclusion, the Fed can choose to use any combination of the three monetary policy tools to persuade, influence or change interest rates and the demand for reserves..