Asked by Casey Snyder on Jun 28, 2024
Verified
A fall in the discount rate will usually encourage banks to borrow from the Fed and therefore reduce the money supply.
Discount Rate
The interest rate charged by central banks on loans to commercial banks, influencing monetary policy and liquidity.
Money Supply
The cumulative sum of money, including cash, coins, and the funds deposited in checking and savings accounts, accessible in an economy at a definite point in time.
- Absorb knowledge on how the Federal Reserve's monetary policy tools are designed to influence economic activities.
- Identify the influence of the Federal Reserve's decisions on the reserves of banks and the circulation of money.
Verified Answer
FJ
Fatma JankabirJun 30, 2024
Final Answer :
False
Explanation :
A fall in the discount rate makes it cheaper for banks to borrow from the Federal Reserve, encouraging them to borrow more. This increases the reserves of banks, allowing them to lend more, which increases the money supply.
Learning Objectives
- Absorb knowledge on how the Federal Reserve's monetary policy tools are designed to influence economic activities.
- Identify the influence of the Federal Reserve's decisions on the reserves of banks and the circulation of money.