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

Question

Quizplus · Accepted Answer

The prime interest rate influences investment spending as it is the rate banks charge their most creditworthy customers, affecting business loans. The federal funds rate affects the overnight borrowing of bank reserves, influencing liquidity and short-term interest rates.

The Prime Interest Rate