An increase in the discount rate will result in:

Question

Quizplus · Accepted Answer

An increase in the discount rate increases the cost of borrowing from the Fed, causing banks to borrow less and reduce their bank reserves. This decreases the supply of reserves in the banking system and raises the federal funds rate, which is the interest rate at which banks lend and borrow reserves from each other overnight. Therefore, there is a decrease in bank reserves and an increase in the federal funds rate.

An Increase in the Discount Rate Will Result In