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:

Regression Toward the Mean

A statistical phenomenon that results when unusually large or small measurements tend to be followed by measurements that are closer to the average.

Control Groups

Groups in experimental research that do not receive the experimental treatment and are used as a benchmark to measure how the other tested subjects do.

Placebo Effects

Positive changes in health perceived after taking a treatment with no therapeutic effect, attributed to the individual's belief in the treatment's efficacy.

Certification

Official recognition or guarantee that a person has passed an examination or achieved a certain standard of knowledge or skill.