How Does In?ation Targeting Affect ?Rms and Consumers in an Economy

question 21

Essay

How does in?ation targeting affect ?rms and consumers in an economy?

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Definitions:

Required Reserve Ratio

The fraction of deposits that banks are required to hold in reserve and not lend out, determined by the central bank.

Interest Rates

The cost of borrowing money or the return on investing, typically expressed as a percentage of the principal, and set by central banks or determined by the market.

Excess Reserves

The capital reserves held by a bank or financial institution in excess of what is required by regulators, creditors, or internal controls.

Actual Reserves

The total amount of funds that a bank has on deposit at the Federal Reserve, plus any cash physically held by the bank.