What policy tool of the Federal Reserve relies on banks borrowing to be effective?
A) open-market operations
B) check collection
C) the reserve ratio
D) the discount rate

Question

Quizplus · Accepted Answer

The discount rate is the interest rate at which banks can borrow from the Federal Reserve. When the Fed lowers the discount rate, it encourages banks to borrow more, which increases the money supply and stimulates economic growth. Therefore, this policy tool relies on banks borrowing to be effective.

What Policy Tool of the Federal Reserve Relies on Banks