Like other market interest rates, the federal funds rate moves in reaction to changes in demand or supply of funds or both.

Question

Quizplus · Accepted Answer

This statement is true. The Federal Funds Rate, like all other market interest rates, is influenced by the forces of supply and demand. Shifts in supply and demand can cause the rate to increase or decrease. For example, if there is a shortage of funds in the market, the demand for funds will increase, driving up the federal funds rate. Conversely, if there is an oversupply of funds, the demand for funds will decrease, causing the federal funds rate to fall.

Like Other Market Interest Rates, the Federal Funds Rate Moves