Answer:
C. discouraging businesses from borrowing money from banks.
Explanation:
The discount rate is the interest rate imposed on commercial banks when they borrow from the Federal Reserve ( the Fed). The banks borrow from the Fed to meet their short-term cash flow requirements. The discount rate is usually higher than the inter-banks rate (the Fed funds rate). An increase in the discount rate automatically pushes the inter-bank rate higher.
The interest rate that commercial banks charge their customer for loans is pegged on the Fed funds rate, which is also the inter-bank rate. An increase in the discount rate will translate to a rise in the bank's interest rates for loans. Businesses and household will reduce their appetite for credit when interest rates go up. A high discount rate is a deterrent to borrowing from the banks.
