Create an account
fractional reserve system
a system where a fraction of total money that was deposited must be kept in reserve
it is money that is to create more money and is calculated by dividing total bank deposits by the reserve requirements
consist of cash on hand, deposits that may be due from other banks, and the percentage required by the Fed held in a vault of deposit in District Reserve bank
money that is deemed legal tender by the government and is not based on or convertible to a commodity
include securities the bank purchases from the Federal Government usually in the form of government securities
determining factors of interest rates
market forces, competition between banks, and the Federal Reserve (sometimes)
role of interest rates on the economy
Low interest rates can stimulate economic development because the more cash you have available, the more likely you are to buy something
why do banks like low interest rates?
they get more profit because of more customers. they also beat the competition.
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