If the Fed increases the discount rate, it is pursuing
A) a contractionary policy because it will be more costly for banks to borrow funds and this puts upward pressure on interest rates in the economy.
B) a contractionary policy because it reduces banks' profit margins by raising the cost of borrowing and lowering the return on lending.
C) an expansionary policy because it raises the cost of holding excess reserves in the banking system.
D) an expansionary policy because it increases bank profits by putting upward pressure on the interest rates that banks can charge on its loans
Ans: A) a contractionary policy because it will be more costly for banks to borrow funds and this puts upward pressure on interest rates in the economy.
You might also like to view...
Perfectly competitive firms are earning economic profits at a market price of $5 and an average total cost of $4. If new firms enter and do not affect the cost for all firms, the market price will ________ until it reaches ________.
A) increase; $4 B) fall; $4 C) increase; $5 D) fall; $5
The free rider problem is caused by the:
A. nonexcludability of a good leading to the undersupply of it. B. incentive to oversupply the good since it is nonrival in consumption. C. "rivalness" in consumption of a good leading to the overconsumption of that good. D. "rivalness" in consumption of a good leading to the undersupply of it.
Which of the following could explain an increase in the interest rate and the equilibrium quantity of loanable funds?
a. The demand for loanable funds shifted rightward. b. The demand for loanable funds shifted leftward. c. The supply of loanable funds shifted rightward. d. The supply of loanable funds shifted leftward.
Suppose a perfectly competitive firm and a monopolist are both charging $5 for their respective products. From this, one can infer that:
A. the competitive firm is charging too much, and the monopolist is charging too little. B. the marginal benefit from selling an additional unit of output is less than $5 for both firms. C. the marginal benefit from selling an additional unit of output is $5 for the competitive firm and less than $5 for the monopolist. D. the marginal benefit from selling an additional unit of output is $5 for both firms.