4. Explain (in detail) how a decrease in the discount rate combined with a decrease in the required reserve ratio will add new money to the economy via the multiplier effect. Use your own words to explain the process in detail. (5 points)
Added by Charles H.
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This makes it cheaper for banks to borrow money, which encourages them to borrow more. Second, a decrease in the required reserve ratio means that banks are required to hold less money in reserve and can lend out more money to borrowers. This means that banks Show more…
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