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mario62 [17]
3 years ago
14

Reserves decrease if the Federal Reserve?a. raises the discount rate or auctions more credit. b. raises the discount rate but no

t if it auctions more credit. c. lowers the discount rate or auctions more credit. d. lowers the discount rate but not if it auctions more credit
Business
1 answer:
sweet-ann [11.9K]3 years ago
8 0

Answer:

D. lowers the discount rate but not if it auctions more credit

Explanation:

Discount rate adjustment and Federal Reserve's auction have the following effects on reserves.

Discount rate adjustment: a <em>higher discount rate</em> will encourage investment in the US economy, thus leading to <em>increased reserves</em> as investment inflows increase.

On the other hand, a <em>lower discount rate</em> encourages investment outflow into other jurisdictions with higher yields, <em>thus reducing reserves</em>.

Auction: <em>auctioning more credit</em> will result in the movement of investment flows into the Federal Reserve (<em>an increase in reserves</em>) as investors invest in auctions. Vice versa.

Therefore, a mix of lower discount rate and not auctioning more credit will result in lower reserves.

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