Question

Which sentence best completes the diagram?

A central bank reduces the
discount rate.——>_____?

A. Banks are more likely to borrow money.
B. Banks are more likely to hire employees.
C. Banks are more likely to purchase bonds.
D. Banks are more likely to foreclose on loans.

Answer 1

Answer:

The answer might be option no C

Answer 2

Answer:

Commercial banks are more likely to borrow money when the discount rate lowers by a central bank.

Option A is the right answer.

What is a discount rate?

A discount rate is the rate of interest levied by a central bank on the borrowings or loans provided to commercial banks and other financial institutions.

When the central bank reduces the rate of discount, then it enables the commercial banks to borrow more funds from the central bank which ultimately rises their lending activities and the amount of credit available to them.

Therefore, the reduction of the discount rate by the central bank induces the borrowing of more funds by commercial banks.

Learn more about the discount rate of central banks here:

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