The Fed can raise the discount rate when it wants to:
A) decrease the money supply.
B) increase the money supply.
C) decrease the budget deficit.
D) increase the budget deficit.

Question

Quizplus · Accepted Answer

When the Fed raises the discount rate, it makes it more expensive for banks to borrow money. This reduces the amount of reserves banks have and therefore decreases the money supply. Thus, choice A is the correct answer.

The Fed Can Raise the Discount Rate When It Wants