Asked by
Annie Jenkins, HSP
on Nov 11, 2024
Verified
By reducing the required reserve ratio,the Fed can not only create excess reserves but also increase the money multiplier.
Money Multiplier
A factor that quantifies the amount of additional money that can be created in a bank's lending process for a given amount of reserves.
Excess Reserves
Excess reserves are the capital reserves held by a bank or financial institution in excess of what is required by regulators, central bank, or other financial authority.
- Understand how the Federal Reserve employs tools of monetary policy to impact the economy.
- Comprehend the mechanism by which the supply of money increases or decreases.
- Understand the effects of the reserve requirement and the discount rate on the functioning of banks.
Verified Answer
MA
Learning Objectives
- Understand how the Federal Reserve employs tools of monetary policy to impact the economy.
- Comprehend the mechanism by which the supply of money increases or decreases.
- Understand the effects of the reserve requirement and the discount rate on the functioning of banks.