Question

Explain how a decrease in the discount rate affects credit availability and the money supply.

Explain how a decrease in the discount rate affects credit availability and the money supply.

Homework Answers

Answer #1

Decrease in the discounting rate will be leading to cheaper rate for the commercial bank to borrow and it will mean that when there will be a cheaper rate for the commercial bank to borrow, they will be borrowing more and it would be leading to a higher ability of these banks to lend this money to borrowers and Hence, this will be leading to a high degree of credit availability in the economy and this will also mean that there would be a very high liquidity into the economy leading to higher money supply.

This is an example of quantitative easing by Federal Reserve through which discount rate is decreased in order to boost the demand into the economy and increase the overall credit availability and growth into the economy which will be leading to increase in the money supply.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
23) A decrease in the discount rate will most likely A) not effect the money supply....
23) A decrease in the discount rate will most likely A) not effect the money supply. B) increase the money supply. C) have an unclear affect on the money supply. D) decrease the money supply. 18) Nominal income is equal to A) aggregate money demand multiplied by aggregate money supply. B) the aggregate price level multiplied by real aggregate income. C) the real aggregate price level divided by the nominal interest rate. D) the aggregate money multiplier divided by the...
Explain how the following will affect the supply of money, the demand for money, and the...
Explain how the following will affect the supply of money, the demand for money, and the interest rate. Illustrate your answers with diagrams. A. BNM’s securities traders buy securities in open-market operations. B. An increase in credit card availability reduces the cash people hold. C. The BNM reduces banks’ reserve requirements. D. Malaysian households decide to hold more money to use for holiday shopping. E. A strong optimism boosts business investment and expands aggregate demand
11. A decrease in the availability of lower-cost drugs will tend to shift the ________ curve...
11. A decrease in the availability of lower-cost drugs will tend to shift the ________ curve for medical services to the ________. supply; right supply; left demand; left demand; right 19. An increase in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate. increases; decreases decreases; increases increases; increases decreases; decreases
Explain how each of the following situations changes the quantity of money (money supply) in the...
Explain how each of the following situations changes the quantity of money (money supply) in the economy, based on its computed change in the money supply. a) The Federal Reserve System buys bonds b) The Federal Reserve System auctions credit c) The Federal Reserve System raises the discount rate d) The Federal Reserve System raises the reserve requirement
1. Explain impact of 1) increase and 2) decrease of interest rate on money supply.
1. Explain impact of 1) increase and 2) decrease of interest rate on money supply.
Starting from a short-run equilibrium, show and explain how an increase of the discount rate affects...
Starting from a short-run equilibrium, show and explain how an increase of the discount rate affects GDP, using the money-interest, the expenditure schedule and the AD-AS graphs. Assuming that at the initial point the GDP is below the potential GDP, explain how self-correcting mechanisms work. What could the government do in order to improve the situation?
Why is it that a decrease in the discount rate does not normally lead to an...
Why is it that a decrease in the discount rate does not normally lead to an increase in borrowed reserves (discount loans)? Use the supply and demand analysis of the market for reserves to explain.
If the Bank of Canada wishes to decrease the money supply, it could: Select one: a....
If the Bank of Canada wishes to decrease the money supply, it could: Select one: a. increase the reserve requirement. b. decrease the target for overnight rate. c. sell a bond. d. All of these would decrease the money supply. The correct answer is c. But could you explain why a is wrong?
Which of the following policies by the Federal Reserve is likely to decrease the money supply?...
Which of the following policies by the Federal Reserve is likely to decrease the money supply? A. None of these B. Reducing reserve requirements C. Selling government bonds D. Decreasing the discount rate
Which of the following would NOT decrease the supply of money in a fiat money economy?...
Which of the following would NOT decrease the supply of money in a fiat money economy? a. The Federal Reserve decides to sell existing treasury securities. b. The Federal Reserve increases the required reserve ratio. c. The Federal Reserve decides to link the value of money to a scarce, rare earth metal. d. The Federal Reserve decides to link the value of money to water (a commodity). e. The Federal Reserve increases the discount rate.