The so-called substitution effect argues that the Federal Reserve's discount rate causes money market rates to move in the opposite direction from the discount rate change.

Question

Quizplus · Accepted Answer

The substitution effect actually refers to the idea that when the price of a good or service rises, consumers will replace it with cheaper alternatives, not directly related to the Federal Reserve's discount rate or money market rates.

The So-Called Substitution Effect Argues That the Federal Reserve's Discount