A discount loan by the Fed to a bank causes a(n)________ in reserves in the banking system and a(n)________ in the monetary base.

Question

Quizplus · Accepted Answer

When the Fed provides a discount loan to a bank, it increases the bank's reserves. This increase in reserves leads to an increase in the monetary base, as the bank now has more funds to lend out. Therefore, the correct answer is D, which states that there is an increase in reserves in the banking system and an increase in the monetary base.

A Discount Loan by the Fed to a Bank Causes