Lowering the discount rate is
A) a contractionary policy stance because the cost of borrowing funds falls, thereby encouraging consumption and investment spending.
B) a contractionary policy because it reduces banks' profit margins by lowering the return on lending.
C) an expansionary policy stance because consumers and businesses can now borrow funds directly from the Fed at a lower cost, thereby encouraging private spending.
D) an expansionary policy stance because it will be less costly for banks to borrow funds and this puts downward pressure on interest rates in the economy.

Question

Quizplus · Accepted Answer

Lowering the discount rate is an expansionary policy stance because it makes it less costly for banks to borrow funds from the Fed, which in turn puts downward pressure on interest rates in the economy. This encourages private spending by making borrowing more affordable for consumers and businesses.

Lowering the Discount Rate Is