Monetary Policy

The Federal Reserve can alter the reserve requirements for banks. This process can increase or decrease the amount of money banks has to lend. This change affects Money and its value. It also changes the availability of loans.

By lowering interest rates, banks encourage people to borrow more money. By raising interest rates, loans become more restricted. The more money that is available, the lower the interest rate.

These changes in borrowing affect the demand for money. Consumers may postpone purchases or suspend loan proceedings if interest rates increase.