To reduce inflation, the Federal Reserve increases the discount rate.

Question

Quizplus · Accepted Answer

Decreasing the discount rate provides more opportunity for businesses and individuals to borrow money to make purchases. Eventually, availability of money to make purchases will increase the demand on goods and services, which will increase the prices on those goods and services. Increasing the discount rate will deter borrowing, which will eventually decrease the demand for goods and services, and prices will fall, stabilizing inflation.

To Reduce Inflation, the Federal Reserve Increases the Discount Rate