If more depository institutions are in debt to the Federal Reserve in greater amounts these institutions will tend to expand the supply of credit and make more loans to offset higher borrowing costs.

Question

Quizplus · Accepted Answer

When depository institutions owe more to the Federal Reserve, they face higher borrowing costs, which typically makes them more cautious in lending. They may tighten credit supply to manage their risk and liquidity, rather than expand it.

If More Depository Institutions Are in Debt to the Federal