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Sagot :
The federal reserve affects money available for banks to loan by using the reserve requirement tool.
What is the reserve requirement in monetary policy?
Reserve requirement is said as the set-aside funds by the commercial banks that they utilize for meeting their liabilities and instant withdrawal from customers.
Therefore, when Fed increases the rate of reserve requirement then banks need to hold the large amount which reduces their ability to loan more funds. It ultimately reduces the money supply and vice-versa.
Learn more about monetary policy here:
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