Equilibrium in the market for bank reserves determines the

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Equilibrium in the market for bank reserves determines the federal funds rate, which is the interest rate at which banks lend or borrow reserves from each other overnight. When there is excess supply of reserves, the federal funds rate tends to fall, and when there is excess demand for reserves, the federal funds rate tends to rise. This rate, in turn, influences other short-term interest rates and ultimately affects the overall level of economic activity and inflation.

Equilibrium in the Market for Bank Reserves Determines the