Question

A higher Discount Rate tends to ___________ the price of loans because the overall supply of bank reserves tends to be smaller..

Answer 1

decrease

Step-by-step explanation:

Discount rates on loans have an inverse relationship with loan prices; if the rate increases, the price will decrease and vice versa. In this case, a higher discount rate will decrease the price of loans as excess reserves in commercial banks and other lending institutions get smaller. This reduces the overall money supply in the economy.