When the Fed Raises the Discount Rate, It

question 39

Multiple Choice

When the Fed raises the discount rate, it:

• A) lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public.
• B) raises the cost of borrowing from the Fed, discouraging banks from making loans to the general public.
• C) increases the amount of excess reserves that banks hold, encouraging them to make loans to the general public.
• D) increases the amount of excess reserves that banks hold, discouraging them from making loans to the general public.

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Definitions:

Shirking

The behavior of employees who avoid doing their work or put in less effort than is expected, which can negatively impact productivity.

Incentive Contracts

Agreements that provide additional benefits or compensation to parties who meet or exceed specific performance goals or targets.

Monitoring

The continuous observation and recording of activities or changes in a project or system over time.

Incentive Contracts

Contracts designed to align the interests of parties by providing rewards based on performance.