Author Question: The discount rate: a. Is a weak monetary tool in the sense that central banks cannot force banks to ... (Read 31 times)

maychende · **on:** Jun 30, 2018

The discount rate:
a. Is a weak monetary tool in the sense that central banks cannot force banks to borrow if the banks have excess reserves.
b. Can have powerful announcement effects.
c. Is the loan rate charged by central banks to financial intermediaries.
d. All the above.
e. None of the above.

Question 2

Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has low mobility international capital markets and a flexible exchange rate system, what happens to the real risk-free interest rate and GDP Price Index in the context of the Three-Sector-Model?
a. The real risk-free interest rate rises, and GDP Price Index rises.
b. The real risk-free interest rate falls, and GDP Price Index falls.
c. The real risk-free interest rate rises, and GDP Price Index falls.
d. The real risk-free interest rate and GDP Price Index remain the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.