Injections in economics are introductions of income into circular flow from sources outside households and businesses, such as additions to investment, government expenditure and exports.
["The Nature of the Economy," ''Reserve Bank of Australia,'' https://www.rba.gov.au/education/resources/delivery-notes/pdf/the-nature-of-economy.pdf. Retrieved 3 Oct. 2022.] When a central bank makes a short-term loan to a member institution, it is said to be injecting liquidity. In the United States, the
Federal Reserve
The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
maintains a target
federal funds rate
In the United States, the federal funds rate is the interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight on an uncollateralized basis. Reserve balances a ...
for banks to loan money overnight. If the lending banks are unwilling to offer enough credit at this rate, the central bank may step in and make loans itself through the
discount window
The discount window is an instrument of monetary policy (usually controlled by central banks) that allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by ...
. In this role, the central bank is operating as the
lender of last resort
A lender of last resort (LOLR) is the institution in a financial system that acts as the provider of liquidity to a financial institution which finds itself unable to obtain sufficient liquidity in the interbank lending market when other facil ...
and is said to be injecting
liquidity
Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include:
* Market liquidity, the ease with which an asset can be sold
* Accounting liquidity, the ability to meet cash obligations when due
* Liqui ...
.
External links
Econobrowser.com What is a liquidity event
References
{{DEFAULTSORT:Injection (Economics)
Operations of central banks