Which of the following statements is correct?
A)The Fed completely controls the volume of discount loans.
B)Although the Fed does not completely control the volume of discount loans, it influences the amount by setting the discount rate.
C)Although the Fed does not completely control the volume of discount loans, it influences the amount through open market operations.
D)The volume of discount loans the Fed makes each year is a constant amount fixed under terms of the Federal Reserve Act.

Question

Quizplus · Accepted Answer

The Fed does not completely control the volume of discount loans, but it does influence the amount by setting the discount rate. Banks may borrow more or less depending on their immediate liquidity needs and the cost of borrowing from other sources. Open market operations can also influence the amount of discount loans indirectly by affecting the overall level of reserves in the banking system. However, the Fed does not fix a constant amount of discount loans to be made each year under the terms of the Federal Reserve Act.

Which of the Following Statements Is Correct