Suppose the Federal Reserve's discount rate is 4 percent. This afternoon, the Federal Reserve Board announces that

Question:

Suppose the Federal Reserve's is 4 percent. This afternoon, the Federal Reserve Board announces that it is approving the request of several of its Reserve Banks to raise their discount rates to 4.5 percent. What is likely to happen to other interest rates tomorrow morning? Carefully explain the reasoning behind your answer.

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...