Commercial banks are holding excess reserves because firms and consumers do not want to borrow. What is a cut in the discount rate likely to do?

1. A Option A: Increase the money supply because it is now cheaper for banks to borrow from the central bank
2. B Option B: Not change the money supply because banks already have excess reserves they cannot lend
3. C Option C: Decrease the money supply because it is now cheaper for banks to borrow from the central bank instead of buying government securities
4. D Option D: Decrease the money supply because it will now be more expensive for business firms and consumers to borrow money

Answer checked 11 October 2026 · How we write and check questions