How would the Fed's changing the discount rate affect the money supply?
What will be an ideal response?
When the Fed changes the discount rate, it changes the amount banks must pay to borrow money from the Fed. If the Fed raises the discount rate, it charges banks more to borrow money, making banks less likely to borrow and therefore, giving banks less money to loan out, which would reduce the money supply. Conversely, if the Fed lowers the discount rate, banks would borrow and loan out more money, which would increase the money supply.
You might also like to view...
Which of the following is associated with a contractionary monetary policy?
A) raising bond prices B) selling bonds C) lowering the required reserve ratio D) lowering the differential between the discount rate and the federal funds rate
Suppose that you and two friends have an opportunity to purchase a pizza restaurant. Each of you would put up $75,000 . The revenue from the restaurant is expected to remain $200,000 per year for the next several years
The costs (not including the opportunity costs of your investment) of operating the restaurant are expected to remain steady at $185,000 for the next several years. The current market rate of interest is 7 percent per year. Should you go in on this deal? Explain.
Which of the following macroeconomic variables is countercyclical?
A) Real interest rates B) Unemployment C) Money growth D) Consumption
The Bureau of Economic Analysis estimates the size of the underground economy but many economists believe that the estimates are too low
a. True b. False