A decrease in the discount rate:
a. increases reserve holdings of the commercial banks.
b. leads to an increase in the interbank rate charged by commercial banks.
c. lowers the cost of borrowing from the Fed.
d. causes an increase in the federal funds rate.
e. decreases the money supply.
Question 2
The major drawback of a binding price ceiling is:
a. it causes a surplus.
b. government regulations of this kind are difficult to enforce
c. it causes a shortage.
d. none of the above; there is no drawback.
Rate enhancement by entropy reduction
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