Quiz 2: Economics: The Framework for Business
If Spending Is Lower Than Revenue, the Government Incurs a Budget
If spending is lower than revenue, the government incurs a budget deficit and must borrow money to cover the shortfall.
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The discount rate is the interest rate the Fed charges on its loans to commercial banks.
When the Fed reduces the discount rate, banks can obtain funds at a lower cost and use these funds to make more loans to their own customers.
The Fed requires that all of its member banks hold funds called "reserves," equal to a stated percentage of the deposits held by their customers. This percentage is called the reserve requirement.
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