Final answer:
When a country's central bank decreases the discount rate on bank reserves, banks have a lower incentive to retain high levels of cash reserves because they receive less money for these reserves and can borrow more cheaply. This could increase lending and expand the money supply. The correct option is 1) Banks receive less money from the government for keeping cash on hand.
Step-by-step explanation:
When a country's central bank decreases the interest rate on reserves for banks, it affects the banks' incentives regarding the holding of cash reserves. In particular, when the central bank lowers the discount rate that it charges banks, the cost for banks to borrow reserves decreases. As a result, banks are more likely to borrow from the central bank rather than keep a high level of reserves.
The choice that most accurately reflects this scenario is option 1: Banks receive less money from the government for keeping cash on hand. With a lower discount rate, there is less incentive for banks to hold reserves, as they earn less on these reserves and can borrow more cheaply from the central bank. Accordingly, banks will likely increase lending since they have access to more funds at a lower cost. This leads to an expansion of the money supply and potential bolstering of economic activity.
As for the other options provided, option 2 is incorrect because the discount rate does not require banks to sell their treasury securities on the open market. Option 3 is also incorrect as a lower discount rate typically allows banks to hold less in reserves, not more. The final part of the original question is incomplete, and thus its accuracy cannot be assessed.