Question

If the federal funds rate is 6 percent and the discount rate is 5.1 percent, to whom will a bank be more likely to go for a loan, another bank or the Fed? Explain your answer.

Answer 1

A bank would be more likely to go to another bank for a loan rather than the Federal Reserve due to the difference in interest rates.

Step-by-step explanation:

The bank will be more likely to go to another bank for a loan rather than the Federal Reserve. This is because the federal funds rate is 6 percent, which is higher than the discount rate of 5.1 percent. Banks typically borrow from other banks at a lower interest rate, so it would be more cost-effective for the bank to seek a loan from another bank instead of the Fed.