If the Fed Increases the Discount Rate, It Is Pursuing

question 80

Multiple Choice

If the Fed increases the discount rate, it is pursuing

• A) a contractionary policy because it will be more costly for banks to borrow funds and this puts upward pressure on interest rates in the economy.
• B) a contractionary policy because it reduces banks' profit margins by raising the cost of borrowing and lowering the return on lending.
• C) an expansionary policy because it raises the cost of holding excess reserves in the banking system.
• D) an expansionary policy because it increases bank profits by putting upward pressure on the interest rates that banks can charge on its loans.

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Definitions:

Privity or Near-Privity Rule

A legal principle requiring a close, direct relationship between the parties involved in a contract for a third party to have the right to sue.

Third Party Liability

Legal responsibility that arises when a third party is held liable for damages or injury caused to another, often seen in insurance contexts.

Unaudited

Referring to financial statements or accounts that have not undergone formal examination and verification by an auditor.

Financial Statement

Documents that provide an overview of a company's financial condition, including balance sheets, income statements, and cash flow statements.