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| Topic: |
Business
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| Number of pages / Number of words: |
6 / 1579 |
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If the so called ratio is, in example, decreased, banks can then hold a lesser amount as a reserve and lend out to their customers more money, thus increasing the money supply in the economy. On the other hand, if the RRR is increased this will decrease the money supply in the system, and banks end up draining the system...
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The open market operations consist of buying and selling government securities, such as Treasury Bills, and bonds to commercial banks and the public (McConnell & Brue, 2004). The sale of these instruments can if sold drain the money out of the system, and if bough it can release money back into the system...
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