/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q6. Which of the following Fed actio... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 16: Q6. (page 347)

Which of the following Fed actions will increase bank lending?

Select one or moreanswers from the choices shown.

a. The Fed raises the discount rate from 5 percent to 6 percent.

b. The Fed raises the reserve ratio from 10 percent to 11 percent.

c. The Fed lowers the discount rate from 4 percent to 2 percent.

d. The Fed sells bonds to commercial banks.

Short Answer

Expert verified

The correct option, in this case, will be c). The Fed lowers the discount rate from 4 percent to 2 percent.

Step by step solution

01

Step 1. Explanation for the correct option

When the discount rates are reduced, the commercial banks are encouraged to borrow more funds from the Fed. Commercial banks use these excess reserves for lending purposes, thereby increasing bank lending.

02

Step 2. Reasons for the incorrect options

a. This is incorrect because if the discount rates, that is, the rate at which the Fed grants loans to commercial banks, increase, it will reduce the lending.

b. This is incorrect because when the reserve ratio increases, the reserves decrease, and so does lending.

d. This is incorrect because when the Fed sells bonds to commercial banks, it absorbs reserves from them, and lending is reduced.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Explain the links between changes in the nation's money supply, the interest rate, investment spending, aggregate demand, real GDP, and the price level.

Suppose a bond with no expiration date has a face value of \(10,000 and annually pays \)800 in fixed interest. In the table provided below, calculate and enter either the interest rate that the bond would yield to a bond buyer at each of the bond prices listed or the bond price at each of the interest yields shown. What generalization can you draw from the completed table?

Bond Price

\( 8,000

Interest Yield, %

________

______

8.9

\)10,000

$11,000

_______

________

________

6.2

Refer to the table for Moola below to answer the following questions. What is the equilibrium interest rate in Moola? What is the level of investment at the equilibrium interest rate? Is there either a recessionary output gap (negative GDP gap) or an inflationary output gap (positive GDP gap) at the equilibrium interest rate, and, if either, what is the amount? Given money demand, by how much would the Moola central bank need to change the money supply to close the output gap? What is the expenditure multiplier in Moola?

Money Supply (\()

Money Demand (\))

Interest Rate (%)

Investment at Interest Rate Shown (\()

Potential Real GDP (\))

Actual Real GDP at Interest

(Rate Shown) ($)

500

500

500

500

500

800

700

600

500

400

2

3

4

5

6

50

40

30

20

10

350

350

350

350

350

390

370

350

330

310

A bank currently has \(100,000 in checkable deposits and \)15,000 in actual reserves. If the reserve ratio is 20 percent, the bank has ______ in money-creating potential. If the reserve ratio is 14 percent, the bank has _______ in money-creating potential

a. \(20,000; \)14,000

b. \(3,000; \)2,100

c. 鈭抃(5,000; \)1,000

d. \(5,000; \)1,000

What is the basic determinant of (a) the transactions demand and (b) the asset demand for money? Explain how to combine these two demands graphically to determine total money demand. How is the equilibrium interest rate in the money market determined? Use a graph to show how an increase in the total demand for money affects the equilibrium interest rate (no change in the money supply). Use your general knowledge of equilibrium prices to explain why the previous interest rate is no longer sustainable.
See all solutions

Recommended explanations on Economics Textbooks

Taxation Economics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.