The interest rate:
A. is expressed as a percentage per dollar borrowed and per unit of time.
B. exists only because lending is risky.
C. tells us how much less money is worth today than in the future.
D. All of these statements are true.
Answer: A
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Other things the same, an increase in the price level induces people to hold
a. less money, so they lend less, and the interest rate rises. b. less money, so they lend more, and the interest rate falls. c. more money, so they lend more, and the interest rate falls. d. more money, so they lend less, and the interest rate rises.
When a commercial bank borrows from a Federal Reserve Bank
A. the supply of money automatically increases. B. it indicates that the commercial bank is unsound financially. C. the commercial bank's lending ability is increased. D. the commercial bank's reserves are reduced.