Question

If the discount rate is lowered, banks borrow:______
a. less from the Fed so reserves decrease.
b. more from the Fed so reserves decrease.
c. less from the Fed so reserves increase.
d. more from the Fed so reserves increase.

Answer 1

Answer:

The correct option is D

Explanation:

Decrease or lower in the discount rate, makes it cheaper for the banks to borrow money, which results in the increase in available of the credit and lending the activity in the economy.

So, when the discount rate is low, banks could borrow more the the Fed (Federal Reserve), in order to increase the reserve, therefore bank could lend the money in the economy.