Answer:
The price of money each pays is determined by the interest rate charged on loans or earned on deposits.
Step-by-step explanation:
Consumer pay commercial banks - The price of money that consumers pay to commercial banks is determined by the interest rate charged on loans or credit cards, and the interest rate earned on deposits.
Banks pay banks - The price of money that banks pay each other is determined by the federal funds rate, which is the interest rate at which banks lend and borrow from each other to meet their reserve requirements. This rate is influenced by the monetary policy decisions of the Federal Reserve, including changes to the discount rate and open market operations.
Banks pay central bank - The price of money that banks pay to the central bank, such as the Federal Reserve, is determined by the discount rate, which is the interest rate at which banks can borrow money directly from the central bank. This rate is set by the central bank and influences other short-term interest rates in the economy.
FEDs pay banks - The Federal Reserve pays interest on the reserves that banks hold with them. The interest rate paid on reserves is determined by the Federal Reserve and is currently set at the target federal funds rate. This rate is used to incentivize banks to hold reserves with the Federal Reserve, which helps to control the money supply and stabilize the economy.