An increase in the discount rate
A) reduces the cost of reserves borrowed from the Fed.
B) signals the Fed's desire to increase the money supply.
C) signals the Fed's desire to lend increased reserves to banks.
D) increases the cost of reserves borrowed from the Fed.

Question

Quizplus · Accepted Answer

An increase in the discount rate increases the cost of reserves borrowed from the Fed. This is because the discount rate is the interest rate at which banks can borrow money directly from the Fed, and an increase in this rate makes borrowing more expensive.

An Increase in the Discount Rate