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Define the discount rate and the discount window

Define the discount rate and the discount window

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Answer #1

The minimum rate set by Fed for lending to banks is called discount rate. It is also a monetary policy tool used by Feds to increase or decrease liquidity in the economy and thereby influencing key economic indicators like inflation, GDP and domestic savings.

Discount window is the time frame when banks can borrow from fed to meet their liquidity or statutory requirements. These borrowing are collateralized and lower than discount rate .

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