M51.3: Monetary Policy part 02: Discount Rate, Reserve Requirements & the Federal Funds Rate

If the Federal Reserve wants to discourage banks from borrowing directly from the Fed and thus decrease the monetary base, the Federal Reserve would likely:

increase the Discount rate

To __________ the money supply, the Fed could _______________.

increase; lower the discount rate

Commercial bank borrowing from the Federal Reserve:

increases the excess reserves of commercial banks and their ability to offer credit

Federal Funds are:

loans between banks

Expansionary monetary policy would consist of:

lowering the Discount Rate

Lowering the Discount Rate has the effect of:

making it less expensive for commercial banks to borrow from the central bank

Contractionary monetary policy would consist of:

raising the Discount Rate

A newspaper headline reads: "Federal Reserve cuts Discount Rate for third time this year." This headline indicates that the Federal Reserve is most likely trying to:

reduce the cost of credit and stimulate the economy.

The amount of interest a central bank charges private banks for short-term loans is known as:

the Discount Rate

The interest rate the Federal Reserve charges commercial/private banks is known as:

the Discount Rate

The interest rate private banks charge each other for short-term/overnight loans is known as:

the Federal Funds Rate

Central banks typically act as _____________ to private banks.

the lender of "last resort"

If the Federal Reserve increases the Discount Rate:

the money supply is likely to decrease

Which of the following is not a tool of the Federal Reserve? (Check ALL that apply)

- Changes to the tax rate - Import quotas - Changes in government spending

In today's economy, the discount window is largely an insignificant monetary policy tool.

False

The primary tool of the Federal Reserve is:

Open-market operations

Central banks usually keep the interest rate they charge _________ what banks charge each other.

above

A high discount rate tends to lead to:

decreased borrowing and less "interest sensitive consumption".