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.