When the Fed reduces the discount rate, banks can obtain funds at a lower cost and use these funds to make more loans to their own customers.

Question

Quizplus · Accepted Answer

When the Fed reduces the discount rate, it makes it cheaper for banks to borrow from the Fed, which in turn lowers the cost of funds for the banks. This can lead to an increase in lending by the banks to their own customers.

When the Fed Reduces the Discount Rate, Banks Can Obtain