When the Federal Reserve increases the interest rate it charges banks to borrow reserves,it is controlling the money supply by using which of the following tools?
A)reserve requirements ratio
B)risk
C)open market operations
D)discount rate
E)unable to tell with the information provided

Question

Quizplus · Accepted Answer

When the Federal Reserve increases the interest rate it charges banks to borrow reserves, it is using the tool of the discount rate. The discount rate is the interest rate at which banks can borrow reserves directly from the Federal Reserve. By increasing the discount rate, the Fed is making it more expensive for banks to borrow reserves and therefore reducing the amount of money in circulation, thus controlling the money supply.

When the Federal Reserve Increases the Interest Rate It Charges