An increase in the discount rate and an increase in the level of nominal aggregate output will have what effect on the equilibrium interest rate?

Question

Quizplus · Accepted Answer

An increase in the discount rate will lead to an increase in the interest rate, as it becomes more expensive for banks to borrow from the central bank. An increase in the level of nominal aggregate output may lead to an increase in inflation expectations, which could also push up interest rates. Therefore, both factors would lead to an increase in the equilibrium interest rate.

An Increase in the Discount Rate and an Increase in the Level