So the Fed does not set the fed funds rate.
The fed funds rate is a market determined rate negotiated between
the lenders and borrowers in
the fed funds market.
So the fed funds rate is the rate that banks charge to lend
overnight funds to another one. so
this is a bank to bank transaction kaya hindi si federal ang
nagsasaad ng kanilang interesting so
it is negotiable or negotiated between the lender and borrower.
The only an interest rate that is set by the federal is the discount
rate, the interest rate that the
fed charges bank that want to borrow from the fed.
One of the most important powers of the fed is its ability to
control the monetary base, by
controlling the monetary base the fed is able to control the money
supply. The components of
monetary base: vault cash and reserve balances; They are the only
asset that fifinancial institution
can use to satisfy reserve requirements requirements. By controlling
the monetary base the
federal can control the total amount of assets that fifinancial
institution can use to meet their
reserved requirements. The federal reserve uses its power over this
reserve to control the
amount of money outstanding in the country.
M2 - is composed of m1 plus savings deposit money, market
deposit, overnight repurchase
agreement, euro dollars and so on..
Value of Money is its purchasing power. You can buy less with a
given amount of money hence
there is a loss of purchasing power.