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March 30, 2017

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How does the Federeal Reserve control the amount of money in circulation?

By (1) setting the short term interest rate that banks must pay from loans from the Federal reserve and (2) setting the "reserve requirement" that banks must leave on deposit with the Federal Reserve to satisfy demand deposits. The restricts the ability of banks to open new checking accounts and issue new loans.

and one more, Open Market Operations, -- the buying and selling of government securities.

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