ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -By law, the board of directors of each Reserve Bank sets the discount rate independently every 14 days subject to the approval of the Board of Governors. Originally, each Reserve Bank set its discount rate to reflect the banking and credit conditions in its own District.

Detailed explanation-2: -The Federal Reserve sets this rate, and banks generally set their prime lending rate based on the discount rate. The Federal Open Market Committee (FOMC) meets eight times per year to adjust the discount rate. The discount rate is also used for monetary policy to help control inflation and adjust the economy.

Detailed explanation-3: -The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the Federal Open Market Committee is responsible for open market operations.

Detailed explanation-4: -The Fed has traditionally used three tools to conduct monetary policy: reserve requirements, the discount rate, and open market operations.