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liberstina [14]
3 years ago
7

Which of the following is an action of the Federal Reserve that strongly influences local economies?

Social Studies
1 answer:
vlabodo [156]3 years ago
8 0

<u>Answer:</u>

"They make loans more expensive or cheaper" is an action of the Federal Reserve that strongly influences local economies.

<u>Explanation:</u>

  • The key to knowing how the Fed influences local economies is the market for bank reserves.
  • When customers deposit fund into their 'checking account', the bank must keep a fraction of the deposit as reserves.
  • The market for these inter bank loans of reserves is called the 'federal funds market', and the rate banks pay for the loans is the federal funds rate.
  • By changing the supply of reserves and federal funds rate, the Fed can increase or decrease interest rates in the market.
  • If it wants to stimulate the economy, it lowers interest rates to make loans economical.
  • This generates more loans to finance investments, consumption of durable goods.
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