When the Fed decreases the discount rate, the banks will borrow ____ from the Fed, lend...

When the Fed decreases the discount rate, the banks will borrow ____ from the Fed, lend _____ to the public, which causes the money supply to _____ (fill in the blanks)

A. more; more; increase
B. more; more; decrease
C. less; more; decrease
D. less; less; decrease
E. less; less; increase

Solutions

Expert Solution

First option is correct

Discount rate is the rate at which the commercial banks take collateralized loan from the federal reserve. in case there is a decrease in the discount rate, these depository institutions have an incentive to take more such loans from the federal reserve. there will be an increase in the borrowings by the commercial banks which means there will be an increase in the money supply.

Rahul Sunny answered 1 year ago

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