When the Fed Increases the Discount Rate, Banks

question 33

Multiple Choice

When the Fed increases the discount rate, banks

• A) must purchase more government securities.
• B) must pay a higher rate when they borrow from the Fed.
• C) will lower the rate they charge to borrowers.
• D) must hold a greater amount of funds in reserve against deposits.

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Definitions:

Stimulant

Substances that increase activity in the nervous system, leading to improved mental and/or physical functions temporarily.

Ecstasy

A state of overwhelming joy or rapture, also the common name for MDMA, a psychoactive drug.

Amphetamine

A type of stimulant medication that affects the central nervous system and is used to treat conditions such as ADHD and narcolepsy.

Caffeine

A central nervous system stimulant found in coffee, tea, and various other foods and drinks, known to boost alertness and energy levels.