Question: 1.How does an open market operation change the monetary base? 2.How do depository institutions create liquidity, pool risks, and lower the cost of borrowing? 3.

1.How does an open market operation change the monetary base?

2.How do depository institutions create liquidity, pool risks, and lower the cost of borrowing?

3. China Cuts Banks' Reserve Ratios

The People's Bank of China announced it will cut the required reserve ratio for five big banks.

Explain how lowering the required reserve ratio will affect the money creation process.

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