When the fed increases the discount rate, banks: a. must purchase more government securities. b. must pay a higher rate when they borrow from the fed. c. will lower the rate they charge to borrowers. d. must hold a greater amount of funds in reserve against deposits?
Business · High School · Thu Feb 04 2021
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The discount rate is the interest rate that the Federal Reserve bank charges private banks to borrow money. It also acts as a way to regulate the flow of money in the economy. By raising the discount rate, banks will borrow less or charge more to consumers who want to borrow. This reduces cash flow in the market.