ECONOMICS
FEDERAL RESERVE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It will raise interest rates and make your truck payment lower
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It will lower interest rates and make your truck payment higher
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It will lower interest rates and make your truck payment lower.
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It will raise interest rates and make your truck payment higher.
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Detailed explanation-1: -How can the Federal Reserve’s raising of the discount rate affect your decision to purchase the truck? It will raise interest rates and make your truck payment higher.
Detailed explanation-2: -Answer and Explanation: When the Fed increases the discount rate, it will give less money to banks and thus the supply of money will shift left. This is because a higher discount rate makes it more expensive for banks to borrow from the Fed.
Detailed explanation-3: -The Fed can influence the money supply by modifying reserve requirements, which generally refers to the amount of funds banks must hold against deposits in bank accounts. By lowering the reserve requirements, banks are able to loan more money, which increases the overall supply of money in the economy.
Detailed explanation-4: -The discount rate is the interest rate on loans that the Federal Reserve makes to banks. If the Fed raises the discount rate, banks will borrow less from the Fed, so both banks’ reserves and the money supply will be lower.
Detailed explanation-5: -The Fed used “open market operations” to pursue that target; that is, by selling (purchasing) securities, the Fed reduced (increased) the supply of bank reserves, thus leading to a higher (lower) federal funds rate.