The Fed Plans to Raise the Discount Rate to 6

question 262

Multiple Choice

The Fed plans to raise the discount rate to 6%. This indicates that:

• A) banks borrowing funds from the Fed will now pay 6% on the amount they borrow.
• B) banks must hold funds in their vault or on deposit with the Fed equal to at least 6% of their deposits.
• C) the Fed will pay 6% on any securities issued by the federal government during the current time period.
• D) the amount of money in circulation can be no more than 6% greater than the amount of gold held in reserve by the government.

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Definitions:

Human Capital

Represents the skills, knowledge, and experience possessed by an individual or population, viewed in terms of their value or cost to an organization or country.

Financial Capital

The funds provided by lenders (and investors) to businesses to purchase real capital equipment for producing goods/services.

Labor Supply Curve

A visual chart that displays how the wage rate correlates with the amount of labor that workers are prepared to offer.

Substitution Effect

The economic principle that as prices rise, consumers will replace more expensive items with less costly alternatives.