When the Fed decreases the discount rate, banks will
A)borrow more from the Fed and lend more to the public.The money supply increases.
B)borrow more from the Fed and lend less to the public.The money supply decreases.
C)borrow less from the Fed and lend more to the public.The money supply increases.
D)borrow less from the Fed and lend less to the public.The money supply decreases.

Question

Quizplus · Accepted Answer

When the Federal Reserve decreases the discount rate, it becomes cheaper for banks to borrow money from the Fed. This typically leads to banks borrowing more from the Fed and then lending more to the public, which increases the money supply.

When the Fed Decreases the Discount Rate, Banks Will