Which statement is incorrect about the federal funds rate and discount rate? O T
ID: 1152141 • Letter: W
Question
Which statement is incorrect about the federal funds rate and discount rate? O The fed funds rate is indirectly changed by buying and selling 3-month Treasury bills ? The fed funds rate is the rate at which banks charge each other for loans O The discount rate is the rate at which the Fed charges a bank for a loan O The fed funds rate is higher than the discount rate If a country has a low MPC, what fiscal policy would you recommend to increase aggregate demand? Decrease discount rate O Increase government purchases and decrease taxes Increase fed funds rate O Increase government purchasesExplanation / Answer
Q1. Option C
The discount rate is the rate at which the fed charges a bank for loan.
Bank rate is also referred to as a discount rate and it is the rate of interest that a commercial Bank charges on its loans and charged as an interest rate to commercial banks and other depository institutions.
Thus it is not the rate that the fed charges a bank for a loan.
Q2 option D.
Increase government purchases.
It leads to higher growth and more inflation
To reduce inflation aggregate demand has to be reduced.
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