A central bank wants to slow economic growth. What does it do to the d…

Question

A central bank wants to slow economic growth. What does it do to the discount rate?

Accepted Answer

A. Raises it, which pushes up the rates banks charge

1. A central bank raises the discount rate to slow down economic growth and lowers it to stimulate growth.
2. Raising it makes central bank funds dearer for commercial banks.
3. Changes in the discount rate usually produce changes in the rate banks charge their own customers, so borrowing costs rise across the economy.
4. Lowering the rate would do the opposite and stimulate the very growth the bank is trying to cool.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 15 "Understanding Money and Financial Institutions", section 15.2 The Federal Reserve System_

Answer

Lowers it, which pulls down the rates banks charge

Answer

Fixes it at zero for a long stretch of time

Answer

Leaves it alone and sells no government bonds