Answer:
The interest rate that the Federal Reserve Bank (the Fed) charges member banks for loans is known as the ___discount rate___. The Fed can ___increase___ the money supply by lowering this rate.
Step-by-step explanation:
The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional FED office. A tool that the Federal Reserve Bank (the Fed) has at its disposal to change the money supply is manipulation of the discount rate. The Fed loans to member banks through the discount window. The interest rate charged on these loans is known as the discount rate.
If interest charge on loan decreases than it will be cheaper for banks to borrow from FED and lent it to customers. So money supply will increase The Fed can encourage borrowing by lowering the discount rate it charges banks. When a bank takes a loan from the discount window, the amount of reserves in the banking system increases. This fuels money expansion and increases the money supply.