An increase in the discount rate makes it more expensive for banking institutions to fall below the ________ ratio.
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A. B. C. D. E.E
The required reserve ratio is the ratio of reserves to deposits that the Fed requires all banks to meet. If a bank fails to meet its required reserve ratio is must borrow funds from the Fed or from the federal funds market to meet the ratio. The bank can borrow funds from the Fed at the discount rate; thus if this rate increases, it becomes more expensive for banks to fail to meet the required reserve ratio.