1051EconomicsMedium
Assume that commercial banks are holding excess reserves because business firms and consumers are not willing to borrow money A decrease in the discount rate is likely to?
ANot change the money supply because banks already have excess reserves they cannot lend
Bincrease the money supply because it is now cheaper for banks to borrow from the central bank
CDecrease the money supply because it is now cheaper for banks to borrow from the central bank instead instead of buying government securities
Ddecrease the money supply because it will now be more expensive for business firms and consumers to borrow money
Correct answer
A. Not change the money supply because banks already have excess reserves they cannot lend
Explanation
The correct answer is Not change the money supply because banks already have excess reserves they cannot lend.