Monetary Policy
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2. Discount rate: The discount rate is the interest rate charged to commercial banks (think Chase and Wells Fargo) when they borrow money from the central bank (such as the Federal Reserve). The central bank can change the discount rate to influence the money supply as a form of monetary policy.
A decrease in the discount rate decreases the cost of borrowing, meaning that more money can be lent out in the economy, making it another form of expansionary fiscal policy.
An increase in the discount rate increases the cost of borrowing, meaning that less money can be lent out in the economy. This is another form of contractionary monetary policy.