The Federal Reserve
Central Bank of the US (central=national=federal)
Federal open market make decisions that affect economy by controlling the supply of moeny
controlling the cost of borrowing money (credit) the fed may increase or decrease the supply money
Raising or lowering the discount rate
the interest rate that banks/S&Ls/credit unions pay the FED for money
Raising or lowering reserve requirement
a minimum amount of money that banks must keep in currency, and NOT loan out (banks want to loan as much as possible for profit)
conducting open market operations
buying and selling government bonds
law of demand applies to money
when interest rates are lower, people will borrow more, when interest rates are higher, people will borrow less
Law of supply applies to money
when interest rates are higher, banks are willing to lend more (make more profit through interest).
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