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".