When the Fed Increases the Discount Rate, It

question 79

Multiple Choice

When the Fed increases the discount rate, it:

• A) increases the reserve to deposit ratio (rr).
• B) decreases the reserve to deposit ratio (rr).
• C) is likely to increase the monetary base (B)
• D) is likely to decrease the monetary base (B).

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Definitions:

Equilibrium Price

The value at which there is a perfect match between how much of a good or service is wanted and how much is provided, leading to a state of market equilibrium.

Equilibrium Quantity

The quantity of goods or services supplied and demanded at the equilibrium price, where the quantity supplied equals the quantity demanded.

Progressive Income Tax

A tax system in which the tax rate increases as the taxable income increases, aiming to distribute the tax burden more equitably.

Proportional Tax

A tax system where the rate of tax is constant regardless of the amount subject to tax, meaning everyone pays the same percentage of their income.