Suppose that the current money market equilibrium features an interest rate of 5 percent and a quantity of $2 trillion. If the Fed raises the discount rate, which of the following is most likely to be the new money market equilibrium?
A) An interest rate of 6 percent and a quantity of $1.5 trillion.
B) An interest rate of 5 percent and a quantity of $2 trillion.
C) An interest rate of 4 percent and a quantity of $2.5 trillion.
D) None of the above.

Question

Quizplus · Accepted Answer

Raising the discount rate typically leads to higher interest rates and a decrease in the quantity of money, as it becomes more expensive for banks to borrow from the Fed, reducing the money supply.

Suppose That the Current Money Market Equilibrium Features an Interest