Normally, whenever the central bank lowers the rate it charges banks for overnight loans, market rates of interest:
A) are not affected.
B) fall at the same rate.
C) increase.
D) are unstable.

Question

Quizplus · Accepted Answer

When the central bank lowers the rate it charges banks for overnight loans, it becomes cheaper for banks to borrow money from the central bank. This, in turn, leads to a decrease in the market rates of interest, as banks are able to lend money at a lower cost. Therefore, B is the correct answer since market rates of interest will fall at the same rate.

Normally, Whenever the Central Bank Lowers the Rate It Charges