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when the fed sets lower reserve requirements, it equal more money in circulation.
Fed sets requirements at 15%. A bank takes a deposit of $500- the bank must keep $75 ($500 x 15%) on reserve at the fed. $425 is left for bank operations and lending.
last but not least the discount rate is the interest rate charged by the fed to banks that borrow on a short-term usually overnight basis.
yeah some ways the fed decision impact the discount rate is a higher discount rate tends to discourage bank borrowing from the Federal Reserve
.... Banks, and this reduces lending to consumers. A lower discount rate tends to have the opposite effect.
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