Which of the following statements best describes why an increase in the discount rate often results in a decrease in the money supply?
A) An increase in the discount rate will lower the overall values of loans from the Federal Reserve Banks to individual banks.
B) An increase in the discount rate will lower the overall values of loans from individual banks to other financial institutions.
C) An increase in the discount rate will lower the overall number of banks issuing loans to individuals.
D) An increase in the discount rate will lower the overall number of loans from the Federal Reserve Banks to individual banks.
E) An increase in the discount rate will lower the overall number of loans from the Federal Reserve Banks to individuals.

Question

Quizplus · Accepted Answer

D) An increase in the discount rate increases the amount of money each local bank will pay to the Federal Reserve bank to borrow money, for example; this tightens money supply.

Which of the Following Statements Best Describes Why an Increase