The Impact of The Monetary Policy on The Economy

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Issue:

Business

 

Written by:

Scott L

 

Date added:

June 22, 2016

 

Level:

University

 

Grade:

A

 

No of pages / words:

3 / 791

 

Was viewed:

9826 times

 

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Essay content:

The second component is the Discount Rate that the Fed would apply to loans by commercial banks. Discount rate has an impact on money supply in the market; for example "A lowering of the discount rate encourages commercial banks to obtain additional reserves by borrowing from Federal Reserve Banks. When the commercial banks lend new reserves, the money supply increases" (Brue & McConnell, 2004, pg 275)...
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When the commercial banks lend new reserves, the money supply increases" (Brue & McConnell, 2004, pg 275). Banks will shift their source of borrowing from other banks to the Federal banks if the Fed Discount Rate (DR) is lower than the FFR of the other banks. The spread between DR and FFR will increase as the DR increased...
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