Asked by Vanessa McKeiver on Jul 05, 2024
Verified
When the Fed decreases the discount rate, banks will
A) borrow more from the Fed and lend more to the public.The money supply increases.
B) borrow more from the Fed and lend less to the public.The money supply decreases.
C) borrow less from the Fed and lend more to the public.The money supply increases.
D) borrow less from the Fed and lend less to the public.The money supply decreases.
Discount Rate
The interest rate charged by central banks on loans they offer to commercial banks or the rate used in discounted cash flow analysis to determine the present value of future cash flows.
Money Supply
The full tally of available monetary resources in an economy at a specified time, comprising cash, coins, and checking and savings account funds.
- Analyze the implications of open market operations on banking activities and the money supply.
- Understand the determinants and impacts of the discount rate and federal funds rate.
Verified Answer
GB
Greeshma BaratamJul 06, 2024
Final Answer :
A
Explanation :
When the Federal Reserve decreases the discount rate, it becomes cheaper for banks to borrow money from the Fed. This typically leads to banks borrowing more from the Fed and then lending more to the public, which increases the money supply.
Learning Objectives
- Analyze the implications of open market operations on banking activities and the money supply.
- Understand the determinants and impacts of the discount rate and federal funds rate.