Additional Tradition Tools over The Money Supply - Discount Window Lending

6 important questions on Additional Tradition Tools over The Money Supply - Discount Window Lending

What is the purpose of a lending facility for banks?

It helps banks obtain short-term reserves when needed.

How can a bank acquire more reserves if it's short?

Borrowing directly from the Fed at the discount rate provides immediate help.

What is defined as the interest rate charged by the Fed for loans?

The discount rate is the interest rate for these loans.
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How does lending affect reserves and the money supply?

Lending increases reserves and ultimately expands the money supply.

What does a lower discount rate indicate?

It often signals an easier, more expansionary policy to stimulate the economy.

What does a higher discount rate signal?

It indicates a tighter, more restrictive policy from the Fed.

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