The correct answer is C. encourage banks to increase their prime rates.
When the Federal Reserve increases the discount rate, it becomes more expensive for banks to borrow money from the Federal Reserve. As a result, banks are encouraged to increase their prime rates, which is the interest rate they charge their most creditworthy customers. By raising their prime rates, banks aim to offset the increased cost of borrowing and maintain their profitability. This can lead to higher interest rates for consumers and businesses, which may then reduce borrowing and spending in the economy.
