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DISCOUNT RATE: The interest rate that the Federal Reserve System charges for loans to banks. To ensure that our nation's banks retain their liquidity and remain in business, the Federal Reserve System stands ready to lend bank reserves on a moment's notice to any bank. The discount rate is the interest rate the Federal Reserve System charges for these loans. Like any interest rate, when it goes up (or down) it discourages (or encourages) borrowing. In principle, the Fed can use the discount rate to control our nation's money supply.

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Lesson 18: Banking | Unit 5: The Economy Page: 24 of 24

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  • Some of the main benefits provided by banks as:
    • Financial intermediaries: banks match savers and borrowers.
    • Depository institutions: banks oversee a share of the nation's M1 money supply.
  • That when a bank fails to maintain adequate reserves, it runs the risk of starting a chain reaction that could cause economy-wide financial instability.
  • That banking regulations have lessened but not eliminated banking instability problems.

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THREE-SECTOR INJECTIONS-LEAKAGES MODEL

A variation of the Keynesian injections-leakages model that includes the three domestic sectors--the household sector, the business sector, and the government sector. This model provides an alternative to the three-sector aggregate expenditures (Keynesian cross) analysis of government stabilization policies, especially how fiscal policy changes in government purchases and taxes can be used to close recessionary gaps and inflationary gaps. Equilibrium is identified as the intersection between the S + T line and the I + G line. Two related variations are the two-sector injections-leakages model and the four-sector injections-leakages model.

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Today, you are likely to spend a great deal of time watching the shopping channel seeking to buy either a turbo-powered vacuum cleaner or a battery-powered, rechargeable vacuum cleaner. Be on the lookout for high interest rates.
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Helping spur the U.S. industrial revolution, Thomas Edison patented nearly 1300 inventions, 300 of which came out of his Menlo Park "invention factory" during a four-year period.
"Sometimes when you innovate, you make mistakes. It is best to admit them quickly and get on with improving your other innovations. "

-- Steve Jobs, Apple Computer founder

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