When the discount rate is increased,
A) there is more money for banks to lend.
B) there is an increase in the overall money supply.
C) there is increased economic activity.
D) there is an economic slowdown.
E) the banks will pay less interest to borrow from the Federal Reserve Bank.

Question

Quizplus · Accepted Answer

When the discount rate is increased, banks are discouraged from borrowing money from the Federal Reserve Bank because the cost of borrowing is higher. This leads to a decrease in the overall money supply as banks have less money to lend to individuals and businesses. This decrease in available credit can lead to an economic slowdown.

When the Discount Rate Is Increased