Lowering the discount rate has the effect of
A) turning required into excess reserves.
B) turning excess into required reserves.
C) making it less expensive for commercial banks to borrow from central banks.
D) forcing commercial banks to call in outstanding loans from their best customers.

Question

Quizplus · Accepted Answer

Lowering the discount rate makes it less expensive for commercial banks to borrow from central banks, encouraging them to take out more loans and increasing liquidity in the banking system. It does not affect required and excess reserves or force banks to call in loans.

Lowering the Discount Rate Has the Effect of