Asked by Quentin Pharis on Jul 17, 2024
Verified
Which of the following both decrease the money supply?
A) A decrease in the discount rate and a decrease in the interest rate on reserves
B) An increase in the discount rate and a decrease in the interest rate on reserves
C) A decrease in the discount rate and an increase in the interest rate on reserves
D) An increase in the discount rate and an increase in the interest rate on reserves
Discount Rate
The interest rate used in discounted cash flow analysis to determine the present value of future cash flows.
Interest Rate
The cost of borrowing money, expressed as a percentage of the amount borrowed, or the return earned on invested funds.
Money Supply
The aggregate monetary assets within an economy at a certain instant, including cash, coins, and the money in checking and savings accounts.
- Realize the significance of the Federal Reserve's maneuvers in altering bank reserves and the availability of money.
Verified Answer
SS
Soumik Sarkar
Jul 18, 2024
Final Answer :
D
Explanation :
An increase in the discount rate makes borrowing from the central bank more expensive for commercial banks, leading to a decrease in the money supply. Similarly, an increase in the interest rate on reserves encourages banks to hold more reserves instead of lending them out, which also decreases the money supply.
Learning Objectives
- Realize the significance of the Federal Reserve's maneuvers in altering bank reserves and the availability of money.