If the Fed changes the federal funds rate
A)inflation is brought to an immediate halt
B)the inflation rate increases for several months,but then begins to decreases
C)major banks try to offset this change by lowering the interest rates they charge on loans
D)major banks try to offset this change by lowering the interest rates they pay on savings deposits
E)major banks raise the prime interest rate that they charge to their best customers

Question

Quizplus · Accepted Answer

When the Fed changes the federal funds rate, major banks try to offset this change by adjusting the prime interest rate that they charge to their best customers. Therefore, E is the best choice. The other choices are incorrect because inflation is not immediately halted by a change in the federal funds rate (A), the inflation rate does not necessarily increase for several months (B), and major banks do not typically lower the interest rates they charge on loans or pay on savings deposits in response to a change in the federal funds rate (C and D).

If the Fed Changes the Federal Funds Rate