Explain the Difference Between the Discount Rate and the Federal

question 34

Essay

Explain the difference between the discount rate and the federal funds rate.If the Fed wants to lower one of these rates,which one can the Fed change by issuing an order? Describe in detail how the Fed helps to lower the other rate.

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Definitions:

External Costs

Costs generated by a production or consumption activity that are not borne by the producer or consumer but by society at large.

Transaction Costs

Costs associated with the process of buying and selling, including search and information costs, bargaining costs, and enforcement costs.

Coase Theorem

A theory that suggests that if property rights are well-defined and transaction costs are low, externalities will be efficiently resolved through bargaining between parties.

Traffic Congestion

The overcrowding of vehicles in an area, leading to slower speeds, longer trip times, and increased vehicular queuing, often analyzed in urban economics.