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Which of the following is an action of the Federal Reserve that strongly influences local economies?

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Answer:

"They make loans more expensive or cheaper" is an action of the Federal Reserve that strongly influences local economies.

Step-by-step 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.
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