By raising and lowering the discount rate,the Fed changes the

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By raising the discount rate, the Fed makes it more expensive for banks to borrow reserves, thus reducing their incentive to do so. Conversely, by lowering the discount rate, the Fed makes it cheaper for banks to borrow reserves, increasing their incentive to do so. The level of required reserves held by individuals and incentives for banks to buy common stock are not directly affected by changes in the discount rate.

By Raising and Lowering the Discount Rate,the Fed Changes the