The amount of borrowed reserves is ________ related to the discount rate,and is ________ related to the market interest rate.

Question

Quizplus · Accepted Answer

The amount of borrowed reserves is negatively related to the discount rate because as the discount rate (the interest rate charged by the central bank for loans it gives to commercial banks) increases, borrowing becomes more expensive, and banks are less inclined to borrow. It is positively related to the market interest rate because as the market interest rate rises, banks can lend at higher rates, making borrowing from the central bank to lend to others more attractive.

The Amount of Borrowed Reserves Is ________ Related to the Discount