Would the maximum loan that a bank can make be different when receiving a discount loan from the Federal Reserve of $1 million versus receiving a checking account deposit of $1 million? Explain why or why not
What will be an ideal response?
They are different. Both increase the reserves at the bank by $1 million, but the bank does not have to hold required reserves against the discount loan because it is not a deposit. The entire $1 million of the discount loan is excess reserves, which the bank can loan out.
Economics
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