The higher the discount rate, the greater the incentive for banks to hold excess reserves.

Name: The higher the discount rate, the greater the incentive for banks to hold excess reserves.
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The higher the discount rate, the higher the interest rate at which banks can borrow from the central bank. This creates a greater incentive for banks to hold excess reserves instead of borrowing from the central bank, as it becomes more expensive to borrow.

The Higher the Discount Rate, the Greater the Incentive for Banks