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6 August, 01:45

Which of the following is an action of the Federal Reserve that strongly influences local economies?

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  1. 6 August, 03:32
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    "They make loans more expensive or cheaper" is an action of the Federal Reserve that strongly influences local economies.

    Explanation:

    The key to knowing how the Fed influences local economies is the market for bank reserves. When customers deposit fund into their 'checking account', the bank must keep a fraction of the deposit as reserves. The market for these inter bank loans of reserves is called the 'federal funds market', and the rate banks pay for the loans is the federal funds rate. By changing the supply of reserves and federal funds rate, the Fed can increase or decrease interest rates in the market. If it wants to stimulate the economy, it lowers interest rates to make loans economical. This generates more loans to finance investments, consumption of durable goods.
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