Question

Which of the following effects is seen on the money supply and the economy when the Federal Reserve Board raises the discount rate? Multiple Choice People are encouraged to make major purchases, increasing economic activity. Inflation increases, the money supply increases, and economic activity increases. Interest rates increase and the money supply decreases. Interest rates decrease and the money supply increases. Banks make more loans, the money supply increases, and economic activity increases.

Answer 1

When the Fed engages in the action of raising the interest rate, the effect on the money supply and the economy is Interest rates increase and the money supply decreases.

What happens when the discount rate rises?

When the discount rate of the nation is increased, it means that the Fed has increased the interest rate at which it loans out money to commercial banks.

As a result, commercial banks will be forced to raise their own rates which would lead to a decrease in money supply as companies and individuals will borrow less money and inject it into the economy.

In conclusion, a rise in the discount rate leads to a fall in money supply.

Find out more on the discount rate at https://brainly.com/question/15878416

#SPJ1