Assume that commercial banks are holding excess reserves because business firms

ID: 2507923 • Letter: A

Question

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:

decrease the money supply because it will now be more expensive for business firms and consumers to borrow money. decrease the money supply because it is now cheaper for banks to borrow from the central bank instead of buying government securities. increase the money supply because it is now cheaper for banks to borrow from the central bank not change the money supply because banks already have excess reserves they cannot lend.

Explanation / Answer

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:

it will

not change the money supply because banks already have excess reserves they cannot lend.

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Assume that commercial banks are holding excess reserves because business firms

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