Ceteris paribus,if the Fed reduces the discount rate,then:
A) The incentive to borrow funds increases.
B) Required reserves decrease.
C) The money multiplier increases.
D) Total reserves decrease.

Question

Quizplus · Accepted Answer

If the Fed reduces the discount rate, it becomes cheaper for banks to borrow funds from the central bank. As a result, the incentive for banks to borrow and lend funds to customers increases, which can stimulate economic activity and promote investment. Therefore, the best choice is A) The incentive to borrow funds increases.

Ceteris Paribus,if the Fed Reduces the Discount Rate,then