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lectur4-page25 - If the discount rate is set high, banks...

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When a bank needs more money to carry on its day to day business activities, the bank asks to borrow money from the Fed’s “discount window.” When the Fed makes the loan, it basically creates new money and pumps it into the economic system. The interest rate the Fed charges banks at the discount window is called the “discount rate.”
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Unformatted text preview: If the discount rate is set high, banks will be discouraged from borrowing from the Fed. If the discount rate is set low, banks will want to borrow more money from the Fed. The discount rate is not really that powerful of a monetary policy tool, but is used more to announce a monetary policy direction by the Fed. 25...
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