When the Fed increases the federal funds rate,

Question

Quizplus · Accepted Answer

When the Fed increases the federal funds rate, it signals that it wants to tighten monetary policy and reduce inflation. As a result, other interest rates tend to follow suit and increase as well. This is because investors can earn a higher return on their investments by holding government bonds or other fixed-income securities that reflect the higher federal funds rate. Additionally, higher interest rates may discourage borrowing and spending, which can further reduce inflation. Therefore, choice C is the best answer.

When the Fed Increases the Federal Funds Rate