If the Fed lowers the discount rate at the same time it conducts an open market sale,it follows that
A) the money supply will fall.
B) the money supply will rise.
C) the money supply will remain unchanged.
D) cash leakages will rise.
E) There is not enough information to answer this question.

Question

Quizplus · Accepted Answer

Lowering the discount rate typically encourages banks to borrow more from the Fed, which can increase the money supply. Conversely, an open market sale (selling securities) typically reduces the money supply by pulling liquidity out of the banking system. These actions have opposing effects on the money supply, making it unclear without additional information how the money supply will ultimately be affected.

If the Fed Lowers the Discount Rate at the Same