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Author Question: Would the maximum loan that a bank can make be different when receiving a discount loan from the ... (Read 63 times)

cool

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on: Jun 29, 2018
Would the maximum loan that a bank can make be different when receiving a discount loan from the Federal Reserve of 1 million versus receiving a checking account deposit of 1 million? Explain why or why not.
 
  What will be an ideal response?

Question 2

One criticism of the Fed's policy of forward guidance during the recession of 2007-2009 is that it contributed to a prolonged period of abnormally low interest rates, leading to speculative bubbles in stocks or other financial assets as investors
 
  A) delayed purchasing these assets until interest rates rose.
  B) chose to sell off these assets due to the low returns on investment.
  C) borrowed at these low interest rates to buy these assets.
  D) switched from investing in these assets to assets with higher risks.


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josephsuarez

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Reply #1 on: Jun 29, 2018
Answer to Question 1

They are different. Both increase the reserves at the bank by 1 million, but the bank does not have to hold required reserves against the discount loan because it is not a deposit. The entire 1 million of the discount loan is excess reserves, which the bank can loan out.

Answer to Question 2

C


cool

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Reply 2 on: Jun 29, 2018
YES! Correct, THANKS for helping me on my review

scikid

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Reply 3 on: Yesterday
Great answer, keep it coming :)

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