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:

Transactions

Financial events or operations that result in a change to the accounting equation, affecting an entity's assets, liabilities, or equity.

Working Capital

An indicator of a company's short-term financial health, calculated as current assets minus current liabilities.

Quick Ratio

A liquidity measure that indicates a company's ability to pay its short-term liabilities with its most liquid assets, excluding inventory.

Current Ratio

Current Ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations or those due within one year, calculated by dividing current assets by current liabilities.