Asked Nov 23, 2019

In 2008 the Fed reduced both the discount and federal fund rates dramatically.  But bank loan volume didn’t increase.  What considerations might have constrained the market’s response to Fed policy?


Expert Answer

Step 1

A drop-in discount rate encourages banks to lower the rate of interest they charge on loans. Due to the reduction in interest rates charged on loan by the bank the borrowing for the public become relatively cheaper.

Step 2

The demand for the loan also depends on the economic condition of individuals borrowing money.  If the individuals are able to pay a loan on time the demand for loan...

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