If the Federal funds rate:
A) Increases, the prime interest rate will decrease
B) Decreases, the prime interest rate will increase
C) Increases, the prime interest rate will increase
D) Decreases, the prime interest rate will not change

Question

Quizplus · Accepted Answer

The prime interest rate generally follows the federal funds rate. When the Federal Reserve increases the federal funds rate, banks are charged more to borrow money from the Federal Reserve, which can lead to an increase in the prime interest rate. Therefore, when the Federal funds rate increases, the prime interest rate is also likely to increase.

If the Federal Funds Rate