Which of the Following Statements BEST Describes Why an Increase

question 76

Multiple Choice

Which of the following statements BEST describes why an increase in the discount rate often results in a decrease in the money supply?

• A) An increase in the discount rate will lower the overall values of loans from the Federal Reserve Banks to individual banks.
• B) An increase in the discount rate will lower the overall values of loans from individual banks to other financial institutions.
• C) An increase in the discount rate will lower the overall number of banks issuing loans to individuals.
• D) An increase in the discount rate will lower the overall number of loans from the Federal Reserve Banks to individual banks.
• E) An increase in the discount rate will lower the overall number of loans from the Federal Reserve Banks to individuals.

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Definitions:

Cash Coverage Ratio

This ratio measures a company's ability to cover its interest obligations with its cash flow, indicating financial health and risk.

Times Interest Earned Ratio

A financial metric used to measure a company's ability to meet its debt obligations, calculated by dividing earnings before interest and taxes (EBIT) by interest expenses.

Debt-To-Equity Ratio

A ratio demonstrating the balance between shareholder equity and debt in funding a company's assets.

Return On Equity

A measure of financial performance calculated by dividing net income by shareholders' equity, indicating how efficiently a company uses its equity investment.