Lowering the Discount Rate Is a Way to Expand the Money

question 146

Multiple Choice

Lowering the discount rate is a way to expand the money supply because

• A)it encourages banks to borrow from the Fed so they can more easily accommodate their customers' needs for loans
• B)it encourages business customers to borrow directly from the Fed
• C)a lower discount rate reduces the amount of reserves banks are required to keep
• D)a lower discount rate automatically reduces excess reserves
• E)it encourages banks to sell U.S.government securities and increase their cash reserves

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Definitions:

Demand Curve

A graph showing the relationship between the price of a good or service and the quantity demanded by consumers at those prices.

Loanable Funds

The funds in financial systems available for borrowing, which consist of household saving, business saving, government budget surpluses, and bank loans.

Loan Period

is the duration over which a borrower is obligated to repay a loan, from the initiation of the loan to the final payment.

Interest Rate

The amount charged by a lender to a borrower for the use of assets, expressed as a percentage of the principal, usually on an annual basis.