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If the Fed wants to discourage bank lending, it will:
1. **Increase the interest paid on reserve balances held at the Fed:** By increasing the interest paid on reserve balances, banks find it more attractive to keep their excess reserves with the Federal Reserve rather than lending them out. This reduces the amount of money available for lending, thereby discouraging bank lending.
2. **Buy government securities from banks:** When the Federal Reserve buys government securities from banks, it injects money into the banking system. This action encourages banks to hold onto the funds received from selling securities instead of lending them out, leading to a decrease in bank lending.
3. **Lower the policy rate:** Lowering the policy rate, such as the federal funds rate, makes borrowing cheaper for banks. This can encourage banks to lend more money rather than keeping excess reserves, which would counter the Fed's goal of discouraging bank lending.
I hope this helps you understand the different ways the Fed can discourage bank lending. If you have any more questions, feel free to ask!
