Question

what is the term for an interest rate set by a central bank to help it manage market-determined interest rates?

Answer 1

The term for the interest rate managed by a central bank is the 'discount rate'. Central banks use various tools like open market operations and interest rates adjustment to manage monetary policy and ensure target rates are met.

Step-by-step explanation:

The term for an interest rate set by a central bank that helps it manage market-determined interest rates is known as the discount rate. The discount rate is the rate charged by the central bank on the loans it offers to commercial banks. Central banks use several tools to conduct monetary policy, with the most common tool being open market operations. Open market operations involve buying and selling government bonds to adjust the level of bank reserves, which in turn affects the supply curve of loanable funds and the resulting market interest rates. If the market interest rates do not align with the central bank's target, it can modify the level of reserves to guide the rates accordingly.

The federal funds rate is another important interest rate related to central bank policy. It's the rate at which banks lend funds to one another overnight, and it is a benchmark for other interest rates in the economy.

Answer 2

The discount rate is the term for an interest rate set by a central bank to manage market-determined rates. Open market operations are the primary tool for influencing these rates, which can raise or lower market interest rates to meet the central bank's targets.

Step-by-step explanation:

The term for an interest rate set by a central bank to help it manage market-determined interest rates is the discount rate. Central banks use various tools to conduct monetary policy, with the most commonly used tool being open market operations. These operations involve the buying and selling of government bonds, which affects bank reserves and consequently the supply of loanable funds. By increasing or decreasing these reserves, a central bank can raise or lower market interest rates to align with their targets, which helps in steering the economy towards desired economic conditions, such as controlling inflation or stimulating growth.

The federal funds rate is another crucial rate in the United States' monetary policy, representing the interest rate at which banks lend funds to one another overnight. While not set directly by the Federal Reserve, it is influenced by their policies and targeted through open market operations. Adjusting this rate impacts a variety of other interest rates, including those for mortgages, car loans, and business loans, thereby affecting overall economic activity.