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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

monetary policy

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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