Lowering the discount rate has the effect of:
A) Turning required into excess reserves
B) Turning excess into required reserves
C) Making it less expensive for commercial banks to borrow from central banks
D) Forcing commercial banks to call in outstanding loans from their best customers

Question

Quizplus · Accepted Answer

Lowering the discount rate reduces the interest rate at which commercial banks borrow from the central bank, making it less expensive for them to do so. This can encourage more borrowing and stimulate lending, which can help boost economic activity. A and D are incorrect because changing the discount rate does not directly impact reserve requirements or force banks to call in outstanding loans. B is incorrect because excess and required reserves relate to the amount of funds a bank is legally required to hold in reserve, and this would not be affected by a change in the discount rate.

Lowering the Discount Rate Has the Effect Of