If the Fed lowers the discount rate (relative to the federal funds rate),banks will (likely)borrow __________ from the Fed,which will __________ reserves in the banking system,and eventually __________ the money supply.
A) less; decrease; lower
B) more; increase; raise
C) the same amount; not change; lower
D) more; decrease; raise
E) none of the above

Question

Quizplus · Accepted Answer

When the Fed lowers the discount rate, banks are more likely to borrow from the Fed at a lower cost. This increases the amount of reserves in the banking system, which eventually leads to an increase in the money supply as banks are able to lend more to the public. Therefore, more borrowing, an increase in reserves, and a rise in the money supply are the likely effects of a discount rate cut.

If the Fed Lowers the Discount Rate (Relative to the Federal