If the Federal Reserve raises the discount rate, banks will be inclined to borrow additional reserves and the money supply will increase.

Question

Quizplus · Accepted Answer

If the Federal Reserve raises the discount rate, banks will be less inclined to borrow additional reserves as the cost of borrowing increases. This will lead to a decrease in the money supply as banks will have less money to lend out.

If the Federal Reserve Raises the Discount Rate, Banks Will