The discount rate refers to which tool of monetary policy? A. The ability to buy and sell treasury securities on an open market.
B. The ability to require banks to hold a certain amount of money in reserve.
C. The ability to adjust interest rates for investors who purchase stocks.
D. The ability to change the cost banks have to pay to borrow money.

D. The ability to change the cost banks have to pay to borrow money.

Explanation:

Reserve( FED) sets the discount rate and applies it on loans to commercial banks and other institutions. Commercial banks use the discount rate as the basis for determining the interest rate to charge customers for loans issued.

The discount rate is among the monetary policy tools available for use by the FED. An increase in the discount rate leads to a rise in commercial banks' loan interest rates, thereby discouraging borrowing. Reduced borrowing reduces the money supply in the economy.

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