If the Fed increases the discount rate, it is pursuing
A) a contractionary policy because it will be more costly for banks to borrow funds and this puts upward pressure on interest rates in the economy.
B) a contractionary policy because it reduces banks' profit margins by raising the cost of borrowing and lowering the return on lending.
C) an expansionary policy because it raises the cost of holding excess reserves in the banking system.
D) an expansionary policy because it increases bank profits by putting upward pressure on the interest rates that banks can charge on its loans
Ans: A) a contractionary policy because it will be more costly for banks to borrow funds and this puts upward pressure on interest rates in the economy.
You might also like to view...
The demand curve is the same as another curve. Which curve is the same as the demand curve? Why are the curves the same?
What will be an ideal response?
If economists say, "the price is too high," they mean that:
A) quantity demanded is greater than quantity supplied. B) quantity supplied is greater than quantity demanded. C) the equilibrium price exceeds the current price. D) the price of a good will tend to increase.