Econ HW 5 - Homework #5 1. a. Discount window is an...

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Homework #5 1. a. Discount window is an instrument of monetary policy that allows commercial banks to borrow money from the central bank (the Fed) at discount rate. It is usually the last resort for bank money shortage and prevents bank runs. b. Lowering of the discount rate indicates that the Fed is “loosening”. It encourages commercial banks to borrow a larger amount of reserve. By borrowing the Fed reserve, the commercial will be able increase the amount of loanable funds for firms to borrow. Therefore, lowering of the discount rate helps ease the money and credit condition and increases the money supply. 2. a. The history of the Department of Treasury can date back to 1775, before the declaration of independence. Continental Congress tried to finance the war of American independence. However, it was unable to collect tax or collect foreign funds. Under such circumstance, the congressed issued bills and promised returns. Although the war was financed, the money devalued quickly. Short before the formal formation of the Treasury, reputable merchants had taken the responsibility as financiers to manage the budget. Finally, in1789, the Department of Treasury was created by the congress as a permanent
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This homework help was uploaded on 04/19/2008 for the course ECON 201 taught by Professor Haideh during the Fall '07 term at W. Alabama.

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Econ HW 5 - Homework #5 1. a. Discount window is an...

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