Reserve requirements affect the amount of money in the banking system. My actions will increase the amount of money in the banking system. This means that banks can lend this money, which should increase the amount of economic activity. Under this scenario, increased growth will offset the negative impacts we are seeing. Reserve requirements are a good tool to use when the economy will benefit from increased investment. REDUCE RESERVE REQUIREMENTS
The discount rate impacts the cost of money. By increasing the cost of money, firms will undertake fewer investments. This will result in slowing the rate of economic growth. It is important to slow growth in order to head off inflation, which is a natural consequence of an overheated economy. In this situation, the discount rate will curtail investment, which is what has led to the economy overheating. INCREASE DISCOUNT RATE
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