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Think in terms of paper money: the borrower pays off a loan of £5 to a lender by giving the lender a £5 note out of her wage packet: the money in the borrower’s wage packet has been reduced by £5, but the money in the lender’s pocket has been increased by the same £5: net increase in the supply of money = £0. If the original lender is an ordinary person, the ...


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Is it true that the Federal Reserve is not Federal and has no reserves? Both claims are blatantly false. On Reserves Fed literally has power to create new reserves for other banks or for its own spending from nothing. Not only, Fed obviously has reserves which you can easily confirm just by looking at a data (see Fed data on amount of reserves held), but it ...


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Not necessarily, but ceteris paribus it would, although not exactly via the channel you mention. Government Bonds Basics First, to be more precise, government primarily raises revenue by issuing bonds. Bonds are fixed income securities and they do not really have interest rate but coupon rates. The coupon rates might be different from prevailing interest but ...


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