Question

The discount rate is the: interest rate at which banks can borrow reserves from other banks. interest rate at which banks can borrow reserves from the Federal Reserve. lowest interest rate that banks can charge for loans to their most creditworthy customers. lowest interest rate that banks can charge for lending reserves to other banks or financial institutions. b. If the Fed were to decrease the discount rate, banks will borrow: fewer reserves, causing a decrease in lending and the money supply. more reserves, causing a decrease in lending and the money supply. more reserves, causing an increase in lending and the money supply. fewer reserves, causing an increase in lending and the money supply.

Answer 1

Michelle needs to calculate the interest for the length of each loan. Bank A will charge $2430 in interest and Bank B will charge $1980 in interest. She will save by borrowing from Bank B.

Step-by-step explanation:

Answer 2

a) The discount rate is the interest rate at which banks can borrow reserves from the federal reserve.

b) If the Fed were to decrease the discount rate, banks will borrow more reserves, causing an increase in lending and the money supply.

Step-by-step explanation:

a) When commercial banks lack money, they request the Federal Reserve Bank (central bank), and Federal Reserve Bank charge a percentage of interest upon that loan. This percentage of interest charged is referred to as the discount rate.

The discount rate is the interest rate at which banks can borrow reserves from the federal reserve.

b) A reduction in the discount rate by the Federal Reserve will make lending easy for commercial banks because they will get a loan with lesser interest to pay, therefore they will lend out more money to the public with lesser interest rates, which will eventually increase the money supply in the economy.

Thus, If the Fed were to decrease the discount rate, banks will borrow more reserves, causing an increase in lending and the money supply.