The discount rate is the interest rates on loans that the Federal Reserves makes banks. Banks occasionally borrow from the Federal Reserve when they find themselves short on reserves. A higher discount rate (increases or decreases) banks' incentives to borrow reserves from the Federal Reserve, thereby (increasing or reducing) the quantity of reserves in the banking system and causing the money supply to (fall or rise).

The federal funds rate is the interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserve uses open-market operations to buy govenment bonds, the quantity of reserves in the banking system (decreases or increases), banks' demand for borrowed reserves (declines or rises), and the federal funds rate (increases or decreases).

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23-03-2020
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The discount rate is the interest rates on loans that the Federal Reserves makes banks. Banks occasionally borrow from the Federal Reserve when they find themselves short on reserves. A higher discount rate (increases or decreases) banks' incentives to borrow reserves from the Federal Reserve, thereby (increasing or reducing) the quantity of reserves in the banking system and causing the money supply to (fall or rise).

The federal funds rate is the interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserve uses open-market operations to buy govenment bonds, the quantity of reserves in the banking system (decreases or increases), banks' demand for borrowed reserves (declines or rises), and the federal funds rate (increases or decreases).

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ruthuchegbu ruthuchegbu · Answer 1 · 2020-03-26T03:05:06+01:00

Answer: The federal reserve uses open market operation to buy government bonds from the public,by doing this they reduce the federal fund rate.

Open market operation is a situation were central bank gives or takes liquidity currency to a bank or group of banks. It is use to implement monetary policy. Federal government buy and sell government securities to control money supply.

The federal government sells government bonds,so that they can raise the federal fund rate,this reduces the quality of reserve in the banking system,which increase the need for bank to borrow,thereby making the federal fund rate to rise.