One of the tools of monetary policy is to change the discount rate. Since 2003

Question

Quizplus · Accepted Answer

Since 2003, the Fed has kept the discount rate a fixed amount above the federal funds rate. This fixed spread between the two rates serves as a signaling mechanism to banks, indicating the stance of monetary policy. Changing the discount rate would have a direct impact on the cost of borrowing for banks, resulting in an immediate change in the supply of loanable funds. However, the main tool of monetary policy has been the federal funds rate, which is adjusted more frequently to influence the economy.

One of the Tools of Monetary Policy Is to Change