What interest rate does a bank pay when it borrows reserves from the Fed?
a. The discount rate.
b. The prime rate.
c. The federal funds rate.
d. The required reserve rate.
QUESTION 2Which of the following policy actions by the Fed would cause the money supply to decrease?
a. An open-market purchase of government securities.
b. A decrease in required reserve ratios.
c. An increase in the discount rate.
d. A decrease in the discount rate.
QUESTION 3Which of the following policy actions by the Fed would cause the money supply to increase?
a. An open market sale of government securities.
b. An increase in required reserve ratios.
c. A decrease in the discount rate.
d. All of these.
QUESTION 4The discount rate is the interest rate charged by:
a. major banks to their best customers.
b. banks for overnight loans to other banks.
c. the Fed on loans of reserves to banks.
d. banks for loans of less than 24 hours.
QUESTION 5The cost to a member bank of borrowing from the Federal Reserve is called the:
a. reserve requirement.
b. price of securities in the open market.
c. discount rate.
d. yield on government bonds.
QUESTION 6If there is a recession, the Fed would most likely:
a. encourage banks to provide loans by lowering the discount rate.
b. encourage banks to provide loans by raising the discount rate.
c. restrict bank lending by lowering the discount rate.
d. restrict bank lending by raising the discount rate.
e. restrict bank lending by lowering the federal funds rate.
QUESTION 7When the Fed lowers the discount rate, it makes it:
a. cheaper for banks to borrow from each other.
b. cheaper for banks to obtain additional reserves by borrowing from the Fed.
c. more difficult for banks to accept deposits.
d. more difficult for banks to extend loans.
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