a. regulating holding companies User:
How do changes in interest rates affect the money supply?
As interest rates fall, people generally hold more cash
, restricting the money supply.
As interest rates rise, people generally keep their wealth in assets that pay returns, expanding the money supply.
As interest rates level off, people charge more and hold more cash
, expanding the money supply.
As interest rates rise, people generally keep their wealth in assets that pay returns, restricting the money supply.
When the interest rates are high, people would prefer to save than holding money. That means money supply in the economy is decreased. [ Whereas when the interest rates are low people prefer to hold money and spend, means increased money supply in the economy.
The discount rate is:
the interest rate banks charge other banks for loans.
the percentage amount that the Federal Reserve discounts when it buys government securities.
the interest rate the Federal Reserve charges for loans to commercial banks.
a tool of fiscal policy.