All else held constant, identify three effects that occur when the Federal Reserve lowers the discount rate.
This generally results in lower interest rates.
Lower interest rates encourage borrowing from banks.
Economic agents spend more when they get cheaper funds.
Households, businesses, and government are more likely to invest in fixed assets (e.g., housing, plant, and equipment).
Households increase their purchase of durable goods (e.g., automobiles, appliances).
State and local government spending increases (e.g., new road construction, school improvements).
Lower domestic interest rates relative to foreign rates can result in a decrease in the (foreign) exchange value of the dollar relative to other currencies.
As the dollar's exchange rate decreases, U.S. goods become relatively inexpensive. Eventually U.S. exports increase.
Increase in spending from all these markets participants results in economic expansion, stimulates additional real production, and may cause the inflation rate to rise.