A borrowed reserves target is ________ because increases in income ________ interest rates and discount loans,causing the Fed to ________ the monetary base,everything else held constant.
A)procyclical;increase;increase
B)countercyclical;increase;increase
C)procyclical;reduce;reduce
D)countercyclical;reduce;reduce

Question

Quizplus · Accepted Answer

A borrowed reserves target is procyclical because increases in income increase interest rates and discount loans, causing the Fed to increase the monetary base, everything else held constant. This means that as the economy grows and income increases, the demand for loans and the interest rates also increase, prompting the Federal Reserve to expand the monetary base to accommodate this growth, thus making the policy procyclical as it moves in the same direction as the business cycle.

A Borrowed Reserves Target Is ________ Because Increases in Income