Chapter 16 Section 3

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Money creation is carried out by the Fed  and all banks in the US. It's responsible for putting money into the economy.

Required reserve ratio is the fraction of deposite that must be kept on reserve.

The money multiplier formula, which is calculated at 1/ RRR. It tells us how much the money supply will increase after an initial cash deposit to the banking system.

Excess reserves are reserves greater than the required amounts.

The prime rate is the rate of interest that banks charge on short term loans to their best customers- usually large companies with good credit ratings.

Open market operations, which is the most important monetary tool, are the buying and selling of government securities to alter the supply of money.

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