We have seen previously how the Federal Reserve can make changes to either the Required Reserve Ratio
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Question:
We have seen previously how the Federal Reserve can make changes to either the Required Reserve Ratio or by conducting Open Market Operations to influence changes in the Money Supply.
we show why that is important. Using the Money Supply and Money Demand model we can visualize the effects of a changing Money Supply on Interest Rates. The Interest Rate is the transition mechanism that allows the Federal Reserve System to make economic adjustments through their money supply changes.
Think about why the interest rate is important.
- How can the interest rate effect overall production and purchases?
- Who benefits from lower interest rates? What would a low interest rate do to our GDP?
- Who could benefit from high interest rates? What would a high interest rate do to our GDP?
Related Book For
Fundamentals of Financial Management
ISBN: 978-1337395250
15th edition
Authors: Eugene F. Brigham, Joel F. Houston
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