To stabilize prices, the Federal Reserve decides to Raise the discount rate.
- Although the economy of the nation is expanding, prices are increasing far too quickly. The Federal Reserve decides to Increase the discount rate in order to stabilize prices.
- Economic growth is characterized by an increase in the quantity of goods and services generated per person over time.
What is meant by the discount rate?
- In a discounted cash flow (DCF) analysis, the discount rate is the interest rate that is used to calculate the present value of future cash flows.
- This aids in determining whether the cash flows from a project or investment will be more valuable than the capital expenditure required to fund it in the present.
Why is it called a discount rate?
- When examining a sum of money that will be received in the future and figuring out its present value, the phrase "discount rate" is employed.
- The definition of the word "discount" is "to deduct a sum."
- To determine a future value of money's present value, a discount rate is subtracted.
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