Question

If the Federal Reserve raises the discount rate, banks are required to:

A) keep more money on hand instead of lending it.
B )offer loans to customers at lower interest rates.
C) pay more interest on loans from the government.
D) increase their investment in treasury.​

Answer 1

C

Step-by-step explanation:

Answer 2

Answer: C) pay more interest on loans from the government.

Step-by-step explanation:

The discount rate is the rate at which the Fed loans out money to banks. Id it were to be raised, banks would have to pay a higher rate to the Fed when they borrow money from them.

This is a tool of monetary policy. If banks incur more interest expenses when borrowing from the Fed, they will either borrow less or pass the cost along to customers. This will reduce the amount of money borrowed and therefore the amount of money in the system.

The Fed reducing the discount rate would have the opposite effect.