Chapter 16: Section 3-

          Monetary Policy Tools


Money creation: the process by which money enters into circulation.

Required reserve ratio: (RRR) ratio of reserves to deposits required of banks by the federal reserve.

Money multiplier formula: amount of new money that will be created with each demand deposit, calculated as 1 divided by the RRR.

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

Open market operations: the buying and selling of government securities to alter the supply of money.

Below represents money creation...

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