With respect to the discount rate policy, an increase in the discount rate, other things equal, will
A)increase the amount of lending by banks
B)decrease the amount of lending by banks
C)not change the amount of lending by banks
D)reduce the borrower's credit risk
E)make the banks more prone to withdrawal risk

Question

Quizplus · Accepted Answer

An increase in the discount rate will make it more expensive for banks to borrow from the central bank, which in turn will lead to a decrease in the amount of lending by banks. This is because they will have to pay higher interest rates on their borrowings, which will reduce their profitability and make them more cautious about taking on new loans.

With Respect to the Discount Rate Policy, an Increase in the Discount