The answer is A: <span>It influences bank behavior in order to control the money supply. Got that correct on Apex, but the answer choice on mine was letter B, but same answer. :) </span>
The discount rate is the interest rate that the Federal Reserve charges US banks if they wish to borrow money. In turn, itis an instrument that the Federal Reserve uses to perform its monetary policy. It can be used if intending to boost or to contract the economy when needed, and also to control inflation levels.
By lowering the discount rate, banks can enjoy cheaper access to funding from the Federal Reserve. Low interest rates trigger higher levels of the demand of money in the economy and this mechanisms in turn increase the money supply.
