Monetary Policy Tools

When money is created by banks and the Fed giving out loans it is called money creation.

This is calculated by the money multiplier formula.

The amount that a bank is allowed to lend is determined by the required reserve ratio; the fraction of the deposit that must be kept on reserve.

Prince rate: the rate of interest that banks charge on short-term loans to their best customers.

When people buy and sell government securities to alter the supply of money is is called open market operations.

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