Question

A decrease in the discount rate: Group of answer choices leads to an increase in the interbank rate charged by commercial banks. causes an increase in the federal funds rate. increases reserve holdings of the commercial banks. lowers the cost of borrowing from the Fed. decreases the money supply.

Answer 1

Answer:

lowers the cost of borrowing from the Fed.

Explanation:

The discount rate is the rate that the Fed charges to commercial banks for overnight loans. This loans are only made when commercial banks have no other option, and represent one of the Fed's main functions: acting as lender of last resort.

When the Fed lowers the discount rate, commercial banks can access the Fed as lender of last resort at cheaper interest rates.