Other Things Constant, If the Fed Decreased the Discount Rate

question 48

Multiple Choice

Other things constant, if the Fed decreased the discount rate,

• A) the earnings of the Fed would increase.
• B) the incentive of commercial banks to borrow from the Fed would be reduced.
• C) the prime interest rate would automatically decline.
• D) commercial banks probably would reduce their excess reserves and be more willing to extend additional loans.

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Definitions:

Firm Size

A measure of a company's scale or magnitude, often based on metrics such as revenue, assets, or number of employees.

Book Value

The net value of a company's assets minus its liabilities, often used to assess the company's worth on its balance sheet.

Risk Premiums

The additional return over the risk-free rate that investors require to compensate for the extra risk of an investment.

Expected Returns

The anticipated profitability or yield an investment is projected to generate under normal circumstances.