What is the definition of the discount rate?

The discount rate refers specifically to the interest rate that central banks, like the Federal Reserve in the United States, charge commercial banks for short-term loans. This rate is crucial because it influences the overall money supply and plays a significant role in monetary policy. When the discount rate is lower, borrowing becomes cheaper for banks, which may lead to increased lending to consumers and businesses, stimulating the economy.

This concept is central to understanding how monetary policy operates and impacts economic activity. The other options detail different types of interest rates or economic indicators that do not align with the definition of the discount rate. For instance, the interest consumers pay on loans and the government's borrowing rates serve different functions and reflect different aspects of financial systems. Inflation, while a critical economic factor, is not defined as a rate charged for borrowing. Thus, understanding the specific role of the discount rate clarifies its importance in economic regulation and banking operations.