If the Fed changes discount policies it may affect the supply of loanable funds.

Question

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The discount rate is the interest rate at which the Fed lends money to banks. If the Fed changes its discount policies, such as lowering or raising the discount rate, it can affect the cost of borrowing for banks and, in turn, affect the supply of loanable funds. If the discount rate is lowered, it becomes cheaper for banks to borrow from the Fed and they may increase their borrowing, thus increasing the supply of loanable funds. On the other hand, if the discount rate is raised, it becomes more expensive for banks to borrow from the Fed, and they may reduce their borrowing, thus decreasing the supply of loanable funds.

If the Fed Changes Discount Policies It May Affect the Supply