Question

which of the following is true about the discount rate?

a. the discount rate is decreased during economic boom times.

b. the discount rate is the same as the federal funds rate.

c. the discount rate is the interest rate charged to banks when they borrow emergency funds from the federal reserve.

d. the discount rate is determined by the u.s. treasury.

e. the discount rate has no impact on economic growth.

Explanation:

• Option A: During economic booms, the discount rate is typically increased (to cool the economy), so A is false.
• Option B: The discount rate (for Fed - bank loans) and federal funds rate (bank - bank loans) differ, so B is false.
• Option C: The discount rate is indeed the interest rate banks pay to the Federal Reserve for emergency borrowing, so C is true.
• Option D: The Federal Reserve (not U.S. Treasury) determines the discount rate, so D is false.
• Option E: The discount rate impacts borrowing, spending, and thus economic growth, so E is false.

Answer:

C. The discount rate is the interest rate charged to banks when they borrow emergency funds from the Federal Reserve.