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At a very basic level, lowering the Discount Rate allows banks to effectively increase their spread from given levels. Assuming the bank does not change anything, there is a brief opportunity for the bank to earn outsized profits equal to the increase in spread over their fixed loan assets.
Because banking is a competitive sport (and some believe that the industry is commoditized), banks will incorporate allowances for additional risk into their underwriting criteria as they know that they are already being compensated through an increased spread. Allowing for additional risk allows some companies that were turned down for credit when seeking capital for expansion to qualify. Those qualifications allow the company to get the loan and buy new equipment or hire additional personnel.
Accordingly, the additional capital flow from corporations to corporations or corporations to individuals stimulates the economy.
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A tool often used by the Federal Reserve to stimulate borrowing and spending is to?
decrease the discount rate to banks-decrease the discount rate to banks.(:
What describes the most likely effect of the Fed lowering discount rate on overnight loans?
An increase in the money supply
What is the most likely effect of the fed lowering the discount rate on overnight loans?
An increase in the money supplyAn increase in the money supply
What can the federal government do to try to bring the economy out of recession?
the federal reserve would try to lower nominal interest rate (monetary policy), not part of govt. The federal govt. would stimulate spending, either by lowering taxes or pumping money into the economy and spending more.
How may the discount rate be said to be adjustable to cyclical conditions of the economy?
the discount rate moved up from a low of 3 percent in May 1994 to 6 percent in January 2001 to counter possible overheating and inflation from the robust economic growth since the mid-1990s
A tool often used by the Federal Reserve to stimulate borrowing and spending is to?
decrease the discount rate to banks-decrease the discount rate to banks.(:
What is the most likely effect of the Federal Reserve lowering the discount rate on overnight loans?
The most likely effect of the Federal Reserve lowering the discount rate on overnight loans would be an increase in the money supply. an increase in the money supply
What most likely effects the Fed lowering the discount rate on overnight loans?
An increase in the money supply
What most likely effect of the Fed lowering the discount rate on overnight loans?
An increase in the money supply
What describes the most likely effect of the Fed lowering discount rate on overnight loans?
An increase in the money supply
What is the most likely effect of the fed lowering the discount rate on overnight loans?
An increase in the money supplyAn increase in the money supply
What impact did the policy actions have on the fed's funds rate?
Federal funds rate was very high in the 1980 due to the economy that rate has dropped over 50% last study was in 2011. In order to stimulate the economy and cushion the fall.Reducing the rate makes money cheaper.
Why does the government sometimes use an expansionary fiscal policy?
to encourage growth and try to stop or prevent a recession
Casey is the chairman of the Federal Reserve The economy is slowing Which of the?
A. Buy government securities/ decrease the discount rate {confirmed}
Can you put the word discount rate in a sentence?
I'm calling to check on your best discount rate. I bought this paint at a discount rate. The discount rate does not apply on Saturdays.
What can the federal government do to try to bring the economy out of recession?
the federal reserve would try to lower nominal interest rate (monetary policy), not part of govt. The federal govt. would stimulate spending, either by lowering taxes or pumping money into the economy and spending more.
Nominal discount rate?
A nominal discount rate doesn't take into consideration inflation and other factors. Conversely, a real discount rate would already have inflation included in the rate. The nominal rate is the amount of discount that is state, whereas, the real discount is the actual amount that will be received.
