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Unformatted text preview: Macro Test 2-discount rate, the rate at which the Fed lends reserves directly to commercial banks,-the federal funds rate, the overnight rate at which commercial banks lend to one another for the purpose of meeting their reserve requirements, those requirements themselves having been imposed by the Fed.-Milton Friedmans monetarism, which focused attention on the growth rate of the money supply rather that on short-term interest rates-M1, was made up of coins, currency, and checking-account balances. M1 was money that people could actually spend and hence was unquestionably the basis for policymaking-The Fed can add to (or subtract from) bank reserves by buying (or selling) treasury bills. open-market operations, as they are called, is the fact that, unlike ordinary purchasers of treasury bills, the Federal Reserve buys treasury bills with funds that were not in existence before it made the purchase. It spends new money into existence.) And because the fed-funds rate is the rate that governs interbank transactions made on an overnight...
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This note was uploaded on 04/21/2008 for the course ECON 2030 taught by Professor Thomassen during the Spring '08 term at Auburn University.
- Spring '08