If the Federal Reserve Raises Its Discount Rate, Many Observers

Multiple Choice

If the Federal Reserve raises its discount rate, many observers regard this as a signal that the Fed is pushing for tighter credit conditions and market participants may respond by reducing their borrowings and curtailing their spending plans. The effect as described above is called the:

A) Announcement effect
B) Cost effect
C) Substitution effect
D) All of the above
E) None of the above