For borrowing from the discount window, the Fed sets the _____ of borrowing, compared to borrowing using the Term Auction Facility, where the Fed sets the _____ of borrowing.
A) maximum quantity; minimum quantity
B) minimum price; maximum price
C) quantity; price
D) price; quantity

Question

Quizplus · Accepted Answer

For borrowing from the discount window, the Fed sets the price of borrowing, meaning the interest rate at which banks can borrow. On the other hand, for borrowing using the Term Auction Facility, the Fed sets the quantity of funds available for borrowing, meaning banks bid on how much they want to borrow and the Fed sets the total amount it will lend at a given interest rate. Therefore, the correct answer is D, where the Fed sets the price (interest rate) for discount window borrowing and the quantity of funds for Term Auction Facility borrowing.

For Borrowing from the Discount Window, the Fed Sets the _____