Chapter 17 Terms 101 - Open Market Operations The Fed...

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Open Market Operations - The Fed changes the amount of reserves by purchases and sales of government bonds. Discount Rate - is the interest rate the Fed charges banks when they borrow from the Fed. Changes in Reserve Requirements - Although rarely done, the Fed decreased reserve requirements on checkable deposits to 10 percent in 1992. If the Fed increases reserve requirements banks reduce their lending by raising interest rates. If the Fed decreases reserve requirements, banks increase their lending of their excess reserves by reducing interest rates. The Equation of Exchange as an Identity - It is true by definition and is called an accounting identity. It states that the total amount of money spent on final output is equal to the total amount of money received for final output. The Equation of Exchange - MV = PY The Quantity Theory of Money and Prices - By making assumptions about variables in the equation of exchange a simplified theory, the quantity theory of money and prices, can be derived, to explain why prices change. The results reveal
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Chapter 17 Terms 101 - Open Market Operations The Fed...

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