A bank is less likely to borrow from the Fed when the __________ falls relative to the __________.
A) discount rate; required reserve ratio
B) excess reserve; required reserves
C) discount rate; federal funds rate
D) federal funds rate; discount rate

Question

Quizplus · Accepted Answer

When the federal funds rate falls relative to the discount rate, banks have a cheaper alternative to borrow reserves from other banks rather than borrowing from the Fed at a higher cost. Thus, they are less likely to borrow from the Fed.

A Bank Is Less Likely to Borrow from the Fed