By lowering the discount rate, the Federal Reserve . . . 

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By lowering the discount rate, the Federal Reserve is attempting to encourage economic activity and infuse liquid capital into the economy. By lowering the discount rate, banks can borrow money from the Federal Reserve at lower rates and are therefore more willing and capable of lending money to private individuals....

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By lowering the discount rate, the Federal Reserve is attempting to encourage economic activity and infuse liquid capital into the economy. By lowering the discount rate, banks can borrow money from the Federal Reserve at lower rates and are therefore more willing and capable of lending money to private individuals. This bolsters the available liquid capital in the market, which in turn drives business and promotes economic growth.

The discount rate is the percentage at which the Reserve charges interest on money borrowed by banks and private organizations, so lowering this rate makes it cheaper for banks to borrow more money, thus allowing more cash to enter the market. The Federal reserve will typically lower the rate when there is not enough cash available and the economy is suffering from the lack of active business.

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The best way to answer this is to say that, by lowering the discount rate, the Federal Reserve is trying to stimulate the economy and bring about more economic activity.

The discount rate is the rate that the Federal Reserve charges banks when the banks want to borrow money.  Banks often have to borrow money for short period from the Fed.  The Fed sets the interest rate that it charges and that interest rate is called the discount rate.

When the Fed reduces the discount rate, it makes it cheaper for banks to borrow money.  This means banks are likely to borrow more.  When banks borrow more money, they will also be likely to lend more money.  Because borrowing costs less, banks can also charge less when they lend.  When banks are able to charge less and lend more, companies and individuals borrow more.  This means that more economic activity happens because companies are borrowing to expand their businesses and people are borrowing to make purchases.

Thus, when the Red reduces the discount rate, it will likely stimulate the economy and bring about more economic activity.

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