Federal fund rate = real interest rate?

Question

Sorry for my incompetence, but i am new to economics.

1.) I just want to know what if federal fund rate = real interest rate or the nominal interest rate?

2.) And what does discount rate means?

Answer 1

Federal Fund's Rate is the rate at which a "Member Bank" (Members of the FDIC) will loan money to another "Member Bank". This is a SHORT TERM rate: 1-3 days of interest. The FOMC (Federal Open Market Committee & Chairmen of the Fed) decide this interest rate.

Real Interest Rate is the rate at which the "Market" (public) will settle on based off of supply & demand. Governments don't determine this, but the equillibrium between supply & demand. Approximated by subtracting the rate of inflation from the nominal interest rate.

Nominal interst rate - Interest rate measured in money terms as distinct from the real interest rate, which is corrected for changes in purchasing power (supply & demand).

Discount rate is the interest rate financial institutions pay to the Federal Reserve to borrow reserves. This too is SHORT TERM (1-3 Days) ... rate set by FOMC .

Answer 2

There are many different interest rates in an economy and any of these interest rates can be expressed in either nomainl terms or real tems. Interest rates reported in the business press or the interest rates offered by banks are nominal interest rates, since they are not adjusted for inflation. In order to express one of these nominal rates as a real rate simply subtrat the rate of inflation from that nominal rate. For example, if you get a loan to buy a car at 8% interest and the rate of inflation is 2%, then the real interest rate that you pay on your loan 6%.

The federal funds rate is the rate of interest that banks charge other banks to borrow reserves.

The discount rate is the rate of interest that the Fed charges banks to borrow reserves form the Fed.

Answer 3

The Federal Funds Rate is a nominal interest rate...that banks charge other banks to borrow in the Federal Funds Market. The main reason banks borrow in this market is because they don't have adequate liquidity to meet their required reserves and therefore borrow overnight to meet their required reserves.

The discount rate is the rate banks pay to borrow money (normally longer-term) from the Federal Reserve.

Answer 4

1) Real interest rate is the Rate of interest adjusted for inflation, the nominal interest rate is the rate of interest right now (not accounting for inflation). & i THINK the federal fund rate must be the "discount rate"
2) the discount rate is the interest rate the federal reserve charges private banks for lending them money.

Answer 5

i assume you mean the Fed decrease cost fee. The Feds replace what banks charge eachother besides as what it fee banks to borrow money from the feds. very own loan loans are offered as bonds. they are offered on the open industry and the Fed doesnt and cant administration the pastime of your individual loan. whilst the Fed lowers the decrease cost fee, in thought banks have extra low-priced money. Its a supply and insist project. too plenty money costs flow decrease. decrease costs extra debtors can qualify for a house. extra debtors that could desire to purchase a house the fee of the properties flow up. this is a straightforward answer, yet whilst the Feds diminished the decrease cost cost the non-public loan backed securities went up. The bond costs for those weren't helped, they have been harm. that could and could replace over the years. yet to have any prompt result on the sales cost of your place has no longer something to do with the Feds. they are basically one peice in an excellent puzzle. to respond to your question, there is no direct implication on what the Feds do and what your house is now fairly worth. Feds diminished the monetary employer fee, and whilst they did that very own loan costs went up.

Answer 6

confusing issue. search on google or bing. this could actually help!