If the Fed Increases the Discount Rate, It Is Pursuing

question 80

Multiple Choice

If the Fed increases the discount rate, it is pursuing

• A) a contractionary policy because it will be more costly for banks to borrow funds and this puts upward pressure on interest rates in the economy.
• B) a contractionary policy because it reduces banks' profit margins by raising the cost of borrowing and lowering the return on lending.
• C) an expansionary policy because it raises the cost of holding excess reserves in the banking system.
• D) an expansionary policy because it increases bank profits by putting upward pressure on the interest rates that banks can charge on its loans.

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