The Federal Reserve lowers the reserve requirement from 6 percent to 5 percent.
Banks then do not have to set aside as much money to meet the reserve
requirement. This gives banks more money to lend to their customers at a lower
interest rate. These conditions make it less expensive for people and businesses to
borrow money. Because they can borrow more, they can spend more. If people are
spending more, prices go up. With this action, the Fed has lessened the likelihood of
Deflation
Economic expansion
Recession
Inflation