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Economic Perspectives, Vol. 4, No. 1, 1978
Finance: Credit Demands Strong
As economic expansion progressed, financing in the credit markets rose, along with the demand for transactions balances. Growth in the narrow money supply (M-1) was close to 71/2 percent for the year, the largest since 1972. In an effort to reduce monetary growth to a pace consistent with a lower rate of inflation, the Federal Reserve supplied the reserves that supported the deposit expansion at only a slightly higher cost to the banking system. Although short-term interest rates moved up from the cyclical lows reached late in 1976, funds were in plentiful supply as evidenced by the record amount raised in the credit market. I ntermediate- and long-term interest rates ended the year at levels inside or below their range of fluctuation in 1976.
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