Question

There are two ways in which the fed can provide additional reserves to the banking system: it can ________ government bonds or it can ________ discount loans to commercial banks.

Answer 1

Fed can purchase government bonds or it can extend discount loans to commercial banks.

The Fed creates cash via buying securities on the open marketplace and including the corresponding funds to the financial institution reserves of commercial banks. Banks then grow the money deliver in flow even extra by using making loans to consumers and agencies.

One manner to increase a bank's amount of required reserves is to: increase deposits. One reason why banks are required to deposit a minimal quantity of reserves on the Federal Reserve is so that: the Federal Reserve can manipulate the capacity of banks to lend cash to others.

The term commercial bank refers to a financial group that accepts deposits, gives checking account offerings, makes various loans, and gives fundamental financial products like certificates of deposit (CDs) and financial savings accounts to individuals and small organizations.

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