What should happen to the equilibrium interest rate and the corresponding rate of investment if the Fed decreases the discount rate?
A)The equilibrium interest rate and the equilibrium rate of investment should both increase.
B)The equilibrium interest rate should increase,and the equilibrium rate of investment should decrease.
C)The equilibrium interest rate should decrease,and the equilibrium rate of investment should increase.

Question

Quizplus · Accepted Answer

When the Fed decreases the discount rate, it becomes cheaper for banks to borrow money, leading to an increase in the money supply. This typically results in a decrease in the equilibrium interest rate, which encourages more investment as borrowing costs are lower.

What Should Happen to the Equilibrium Interest Rate and the Corresponding