If the Fed increases the discount rate, what happens to the money supply?
A)Increases
B)Decreases
C)Stays the same
D)None of these

Question

Quizplus · Accepted Answer

When the Fed increases the discount rate, it becomes more expensive for banks to borrow money from the Fed. Banks are then less likely to borrow money and will lend out less money to customers, which leads to a decrease in the money supply.

If the Fed Increases the Discount Rate, What Happens to the Money