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RESERVES: The vault cash and deposits at the Federal Reserve System that banks use to complete day-to-day transactions.

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Lesson 20: Federal Reserve System | Unit 4: Monetary Policy Page: 15 of 20

Topic: Discount Rate <=PAGE BACK | PAGE NEXT=>

The discount rate is the interest rate the Fed charges for reserve loans to commercial banks.
  • The Federal Funds rate is for loans between commercial banks.
  • The discount rate is for loans from the Fed to commercial banks.
  • Banks borrow from the Fed when the need reserves to stay in business. The price they pay is the discount rate.

Why don't troubled banks use the Federal Funds Market?

  • Other banks are probably reluctant to extend a loan.
  • The entire banking system might be short of reserves.
  • The discount rate is typically lower than the federal funds rate.

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PREFERENCES CHANGE, UTILITY ANALYSIS

A disruption of consumer equilibrium identified with utility analysis caused by changes in the preferences for a good, which likely results in a change in the quantities of the goods consumed. The change in preferences alters the marginal utility-price ratio and forces a reevaluation of the rule of consumer equilibrium.

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Today, you are likely to spend a great deal of time looking for the new strip mall out on the highway seeking to buy either a T-shirt commemorating next Thursday or a birthday gift for your uncle. Be on the lookout for letters from the Internal Revenue Service.
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Lombard Street is London's equivalent of New York's Wall Street.
"When you play, play hard; when you work, don't play at all. "

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