If the discount rate is raised then banks borrow
A)more from the Fed so reserves increase.
B)more from the Fed so reserves decrease.
C)less from the Fed so reserves increase.
D)less from the Fed so reserves decrease.

Question

Quizplus · Accepted Answer

When the discount rate is raised, banks are less likely to borrow from the Fed because it becomes more expensive to do so. As a result, banks will have lower reserves because they are not borrowing as much from the Fed. Therefore, less borrowing from the Fed leads to a decrease in reserves.

If the Discount Rate Is Raised Then Banks Borrow