1. THe Federal Reserve
... exercises its regulatory powers in several ways, the most important of which may be classified as instruments of direct or indirect control. One form of direct control can be exercised by adjusting the legal reserve ratio (the proportion of its deposits that a member bank must hold in ... its reserve account), and as a result, increasing or decreasing the amount of new loans that the commercial banks can make. Because loans give rise to new deposits, the possible money supply is, in this way, expanded or reduced. This policy ... in the cost of such loans has an effect similar to that of ...
- Word Count: 2737
- Approx Pages: 11
- Has Bibliography
- Grade Level: Undergraduate