|Posted on April 14, 2014 at 6:15 PM|
The discount rate is the interest rate which the Fed lends to banks over night. When the discount rate is low, interest rates fall and investment spending rises. Aggregate demand shifts to the right in the AD/AS model.
When the discount rate is high, interest rates rise and investment spending falls. Aggregate demand would then shift to the left in the AD/AS model.
AP Macroeconomics Unit 4 Monetary Policy