Question

1. The discount rate is the:________. a. lowest interest rate that banks can charge for loans to their most creditworthy customers. b. interest rate at which banks can borrow reserves from the Federal Reserve. c. lowest interest rate that banks can charge for lending reserves to other banks or financial institutions. d. interest rate at which banks can borrow reserves from other banks. 2. If the Fed were to decrease the discount rate, banks will borrow:______. a. more reserves, causing an increase in lending and the money supply. b. fewer reserves, causing an increase in lending and the money supply. c. fewer reserves, causing a decrease in lending and the money supply. d. more reserves, causing a decrease in lending and the money supply.

Answer 1

Answer(1)

b. interest rate at which banks can borrow reserves from the Federal Reserve

Explanation:

The discount rate is known in America as the rate of interest which a central bank charges on its loans and advances to a commercial bank. This loans and advances are from the federal reserve.

Answer (2)

a. more reserves, causing an increase in lending and the money supply

Explanation:

Excess lending from the national reserve due to a lowered discount rate  will lead to a reserve supply excess into commercial banks throughout the economy and expands the money supply .