When the Federal Reserve increases the federal funds rate,bank loans ________,the supply of loanable funds ________,and the real interest rate ________.

Question

Quizplus · Accepted Answer

When the Federal Reserve increases the federal funds rate, banks will increase their interest rates on loans, thus making it more expensive to borrow money. This will lead to a decrease in bank loans. In addition, as borrowing becomes more expensive, the supply of loanable funds will increase because people will be less likely to borrow money. Finally, the real interest rate will rise, since lenders will demand higher returns for lending money due to the increased cost of borrowing.

When the Federal Reserve Increases the Federal Funds Rate,bank Loans