The Reason That the Fed Does Not Actively Use Discount

question 8

Multiple Choice

The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed

• A)acts when a majority of member banks agree on policy and the banks rarely agree.
• B)earns interest on discounting and cannot afford to lose the revenue.
• C)does not know how banks will respond to discount rate changes.
• D)has been directed by Congress to set the discount rate at a permanent level.

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Definitions:

Expenditure

Money spent or cost incurred in an organization's efforts to generate revenue, representing the cost of doing business.

Bank Reconciliation

The process of comparing a company's bank account balance as reported by the bank with the company's own records and reconciling any differences.

Deposit in Transit

Funds that have been sent to a bank but not yet recorded on the bank's records, often seen in bank reconciliation statements.

Outstanding Checks

Checks that have been written and recorded in a company's financial statements but have not yet been cashed or cleared by the bank.