ECONOMICS (CBSE/UGC NET)

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ECONOMICS

MONETARY POLICY

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
The Fed’s discount lending is of three types: ____ is the most common category; ____ is given to a limited number of banks in vacation and agricultural areas; ____ is given to banks that have experienced severe liquidity problems.
A
seasonal credit; secondary credit; primary credit
B
secondary credit; seasonal credit; primary credit
C
primary credit; seasonal credit; secondary credit
D
seasonal credit; primary credit; secondary credit
Explanation: 

Detailed explanation-1: -The correct answer is option c) primary credit. Federal Reserves extends discount lending to different banks commonly known as the primary credit. Under primary credit, most of the banks that qualify for the credit are depository institutions with sound financial conditions.

Detailed explanation-2: -As described in more detail below, depository institutions have access to three types of discount window credit from their regional Federal Reserve Bank: primary credit, secondary credit, and seasonal credit, each with its own interest rate ("discount rate").

Detailed explanation-3: -It is the Federal Reserve’s actions, as a central bank, to achieve three goals specified by Congress: maximum employment, stable prices, and moderate long-term interest rates in the United States (figure 3.1).

Detailed explanation-4: -The Fed offers three types of discount window lending programs to financial institutions: primary credit, secondary credit, and seasonal credit.

There is 1 question to complete.
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