To Offset the Effect of Households and Firms Deciding to Hold

question 38

Multiple Choice

To offset the effect of households and firms deciding to hold less of their money in checking account deposits and more in currency,the Federal Reserve could

• A)raise the required reserve ratio.
• B)buy Treasury securities.
• C)raise the discount rate.
• D)lower bank taxes.

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Definitions:

Net Present Value

A financial metric that calculates the value of projected future cash flows, discounted back to their present value.

Funds

Financial resources that are saved or obtained for a specific purpose or project, often pooled together from multiple sources.

Discount Rate

The interest rate charged to commercial banks and other financial institutions for the loans they take from the central bank or the rate used in discounted cash flow analysis to determine the present value of future cash flows.

NPV

NPV (Net Present Value) is a financial metric that calculates the present value of expected future cash flows of an investment, subtracting the initial investment cost.