If the Federal Reserve Wants to Increase the Availability of Money

question 44

Multiple Choice

If the Federal Reserve wants to increase the availability of money and credit, it can

• A) lower the discount rate.
• B) raise the reserve requirements.
• C) sell government bonds to the public.
• D) encourage banks to increase their prime lending rate.

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Definitions:

Effective Rate

The actual interest rate on an investment or loan, taking into account the effect of compounding over a given period of time.

Effective Annual Rate

It is the interest rate that is adjusted for compounding over a given period. Essentially, it represents the actual annual return on an investment or the actual cost of borrowing.

Per Month

A recurring period or frequency, indicating that an action or event occurs or is calculated on a monthly basis.

Effective Rate

The actual interest rate an investor earns or pays on an investment or loan, taking into account the compounding of interest.