Depository institutions (DIs)play an important role in the transmission of monetary policy from the Federal Reserve to the rest of the economy primarily because

Question

Quizplus · Accepted Answer

Depository institutions (DIs) include commercial banks, savings and loans associations, and credit unions, and these institutions accept deposits from households and firms which are a major portion of the money supply. When the Federal Reserve changes the reserves that DIs hold at the Fed or the interest rate it pays on those reserves, it affects the amount of money DIs can lend out and the interest rates they charge. This, in turn, influences the level of economic activity in the economy. Therefore, DIs play an important role in transmitting monetary policy from the Federal Reserve to the rest of the economy.

Depository Institutions (DIs)play an Important Role in the Transmission of Monetary