Question

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.

a. To meet their reserve requirements, most banks borrow money from the federal funds market rather than from the discount window.
b. If the Fed wants to contract the monetary supply, it can raise the discount rate.
c. The federal funds rate is a primary barometer of Fed policy reported in the media.

Answer 1

The correct answer is A and C

Step-by-step explanation:

Discount rate is the term which is defined as the minimum rate of interest which is set through the US Federal Reserve and some other national banks for lending to the other banks.

Fed funds rate is the term which is defined as the interest rate that is charged by the banks with each other in order to lend the Federal Reserve Funds overnight. It is a tool for the nations central bank, uses the control growth of US economic.

The statements which are correct is as:

Generally, the banks borrow from the federal funds market instead of the discount window.

The fed funds rate is the initial barometer of the policy of Fed which is reported in the media.