PricelevelLRASaYc Yf YbAS₂2AD₁AS₁AD₂Real GDP per yearDecreasing the discount rate isan expansionary policy stance because consumers and businesses can now borrow fundsdirectly from the Fed at a lower cost, thereby encouraging private spending.a contractionary policy stance because the cost of borrowing funds falls, therebyencouraging consumption and investment spending.an expansionary policy stance because it will be less costly for banks to borrow funds andthis puts downward pressure on interest rates in the economy.a contractionary policy because it reduces banks' profit margins by lowering the return onlending.

Discount rate – The discount window is used to lend money to banks to meet the reserve requirement.…

Answered: Decreasing the discount rate is an…

Decreasing the discount rate is an expansionary policy stance because consumers and businesses can now borrow funds directly from the Fed at a lower cost, thereby encouraging private spending.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 15P

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Question

Price
level
LRAS
a
Yc Yf Yb
AS₂2
AD₁
AS₁
AD₂
Real GDP per year
Decreasing the discount rate is
an expansionary policy stance because consumers and businesses can now borrow funds
directly from the Fed at a lower cost, thereby encouraging private spending.
a contractionary policy stance because the cost of borrowing funds falls, thereby
encouraging consumption and investment spending.
an expansionary policy stance because it will be less costly for banks to borrow funds and
this puts downward pressure on interest rates in the economy.
a contractionary policy because it reduces banks' profit margins by lowering the return on
lending.

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