In 2003 the Federal Reserve changed the rules for borrowing directly from the Fed by member banks (discount rate) by allowing banks to more easily borrow (not as restrictive). At the same time, the Fed raised the cost of borrowing directly from the Fed (increased therate) and, at times, the discount rate is higher than the federal funds rate (rate banks borrow from one another).
Marcia thinks because the cost of borrowing from the Fed went up,
borrowing costs increased for banks and thus decreased the money supply.
Greg thinks that since the Fed made it easier for banks to borrow from the Fed, liquidity for banks has increased and thus the money supply should increase.
Alice does not think this change in the discount rate should affect the money supply.
Who do you agree with and why?