endence, which allows it to achieve a more appropriate balance between short-run and long-run objectives. The Fed also will not probably engage in helping a region that is in a recession. The Fed cannot control inflation or unemployment directly; instead, it influences them indirectly, mainly by raising or lowering short-term interest rates. The major tools the Fed uses to affect interest rates are open market operations and the discount rate, both of which work through the market for bank reserves. Banks and other depository institutions are legally required to hold a specific amount of funds in reserves. Currently, banks must hold 3-10% of the funds they have in intere
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