The discount rate is the interest rate the Fed charges on loans of reserves to banks. The federal funds rate is the interest rate banks charge for overnight loans of reserves to other banks. Which of the following statements about the discount rate and the federal funds rate are true? Check all that apply. If the Fed wants to expand the money supply, it can reduce the discount rate. A lower discount rate discourages banks from borrowing reserves and making loans. Usually, banks borrow from the federal funds market rather than the discount window.
IS-LM-PC Analysis
The IS (Investment Saving), LM (Liquidity Preference- Money Supply), and PC (Philips Curve) is the model that looks at the dynamics of output and inflation. It takes into account the central bank policy decision to adjust the inflation and real interest rate in the economy. It enables the economist to weather to priorities between employment and inflation rate analyzing the model. It is a practice-driven approach adopted by economists worldwide.
IS-LM Analysis
The term IS stands for Investment, Savings, and LM stands for Liquidity Preference, Money Supply. Therefore, the term IS-LM model is known as Investment Savings – Liquidity preference money Supply. This model was introduced by a Keynesian macroeconomic theory which shows the relationship between the economic goods market and loanable funds market or money market. In other words, it shows how the market for real goods interacts with the financial markets to strike a balance between the interest rate and total output in the macroeconomy. This particular model is designed in the form of a graphical representation of the Keynesian economic theory principle. The output and money are the two important factors in an economy.
The discount rate
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