Final answer:
The federal funds rate is the interest rate for interbank overnight loans, and the Interest on Excess Reserves is the rate the Fed pays banks on their reserves. Reserve requirements, discount rate, and open market operations are key tools in monetary policy.
Step-by-step explanation:
The blank spaces in the student's question refer to different interest rate terms within monetary policy and banking. The first blank should be filled with the federal funds rate, which is the interest rate at which one bank lends funds to another bank overnight. The second blank pertains to the interest rate the Federal Reserve (often referred to simply as the "Fed") pays on reserves that banks hold, known as the Interest on Excess Reserves (IOER).
The reserve requirement is the amount of money banks are mandated to keep on reserve and not lend out. It's part of the regulatory framework that ensures banks maintain enough liquidity to meet depositor's demands. The discount rate is another important rate; it is the interest rate the Federal Reserve charges commercial banks for loans. Through open market operations, which involve the buying and selling of government securities, the Fed influences the quantity of money in the system and the overall level of interest rates.