On a graph of the supply and demand for reserves, if there is discount lending, what would the Fed have to do to lower the equilibrium federal funds rate?
A) buy bonds
B) sell bonds
C) lower the discount rate
D) none of the above

Question

Quizplus · Accepted Answer

The discount rate is the interest rate charged to banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility. By lowering the discount rate, the Fed makes it cheaper for banks to borrow money, which increases the supply of reserves in the banking system. This, in turn, lowers the equilibrium federal funds rate.

On a Graph of the Supply and Demand for Reserves