Answer:
"They make loans more expensive or cheaper" is an action of the Federal Reserve that strongly influences local economies.
Explanation:
- The key to knowing how the Fed influences local economies is the market for bank reserves.
- When customers deposit fund into their 'checking account', the bank must keep a fraction of the deposit as reserves.
- The market for these inter bank loans of reserves is called the 'federal funds market', and the rate banks pay for the loans is the federal funds rate.
- By changing the supply of reserves and federal funds rate, the Fed can increase or decrease interest rates in the market.
- If it wants to stimulate the economy, it lowers interest rates to make loans economical.
- This generates more loans to finance investments, consumption of durable goods.
