The prime interest rate:
A)affects investment spending while the overnight rate affects consumption spending.
B)affects consumption spending while the overnight rate affects investment spending.
C)has no effect on exchange rates and net exports.
D)affects investment spending while the overnight rate affects overnight borrowing of bank reserves.

Question

Quizplus · Accepted Answer

The prime interest rate affects investment spending as it is the rate at which banks lend money to their borrowers. It can impact the demand for loans, affect borrowing costs for businesses, and ultimately influence investment decisions. On the other hand, the overnight rate affects the overnight borrowing of bank reserves and has a more direct impact on the money supply and inflation.

The Prime Interest Rate