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- Subject
- Money, Interest Rates And Outputeconomics-mcqs › money-interest-rates-and-output
- Published
- 31 May 2019
- Last updated
- 28 May 2026
If commercial banks are holding excess reserves due to low demand for loans from businesses and consumers, what effect will a reduction in the discount rate have on the money supply?
Multiple choice question for Money, Interest Rates And Output. Select an option, then review the explanation below.
Explanation
When banks hold excess reserves and there is low demand for loans, a decrease in the discount rate does not affect the money supply because banks are not motivated to lend more. Therefore, the money supply remains unchanged despite cheaper borrowing costs from the central bank.
More Money, Interest Rates And Output MCQs
Practice related questions from the same subject.
- 1.How does a decrease in interest rates affect the monetary base, consumer credit availability, and the cost of consumer credit?
- 2.Which variable do central banks typically set directly, and which variable adjusts as a consequence?
- 3.What is it called when the central bank purchases financial assets in the open market to expand the monetary base?
- 4.M4 is considered a __________ monetary aggregate and encompasses deposits held at both __________ and __________?
- 5.Assuming all other factors remain constant, what happens to the quantity of real money holdings when interest rates increase?