On the graph of supply and demand for reserves, if there is positive discount lending, the equilibrium federal funds rate equals the discount rate.

Question

Quizplus · Accepted Answer

The discount rate is the interest rate charged by the central bank to commercial banks for loans. Positive discount lending means that the central bank is lending more money to commercial banks than it is borrowing from them. This will increase the supply of reserves in the banking system, which will lead to a decrease in the equilibrium federal funds rate. The equilibrium federal funds rate is the interest rate at which banks lend money to each other overnight. If the equilibrium federal funds rate is equal to the discount rate, then the central bank is not lending any money to commercial banks.

On the Graph of Supply and Demand for Reserves, If