Question

10. The discount rate and the federal funds rate The discount rate is the interest rate on loans that the Federal Reserve makes to banks. Banks occasionally borrow from the Federal Reserve when they find themselves short on reserves. A lower discount rate banks' incentives to borrow reserves from the Federal Reserve, thereby the quantity of reserves in the banking system and causing the money supply to 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 sell government bonds, the quantity of reserves in the banking system banks' need to borrow from each other , and the federal funds rate

Answer 1

Answer : The discount rate is the interest rate on loans that federal reserve charged from the bank. Bank occasionally borrow this money from federal reserve they themselves find that short of the reserve. A lower discount rate increases the incentives to borrow reserve from the federal reserve , there by increases the quantity of reserve increases in the bank and causing money supply to rises because money in the bank has been increased and there are more supply of money in the market place.

The federal fund rate is the interest rate the bank charged the another for short term or for overnight. When in the open market operation the Fed buys government securities than the reserve in banking system has been decreased in result bank had need to borrow from each other has been rises as they have less reserve available with them in result , the desert fund rate has been increased.

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Answer 2

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 government bonds, the quantity of reserves in the banking systemincreasesbanks' need to borrow from each otherfalls and the federal funds ratedecreases  .