Increasing the discount rate can influence the economy by: A. encouraging businesses to hire many more employees.
B. making it more difficult for investors to purchase treasury
securities.
C. discouraging businesses from borrowing money from banks.
O D. giving banks an incentive to reduce the value of their reserves.

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.

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