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To: LLCF who wrote (81611)3/16/2001 2:59:21 PM
From: Ilaine  Respond to of 436258
 
There is a correlation between the money supply and real interest rates. When the banks have lots of money to lend and they are all competing for your business, interest rates go down. If money is hard to get, then it becomes more expensive. Simple law of supply and demand.

That's the reason the fed expands and contracts the money supply by selling or buying government securities - to keep the fed funds rate at the target rate.