Decoding the Federal Fund Rate

What is the Federal Funds Rate primarily used for?

• Consumer credit

• Government funding

• Long-term loans

• Overnight interbank loans

What percentage of deposits must banks typically reserve?

• 10%

• 5%

• 15%

• 20%

What happens when a bank's reserves are insufficient for customer demands?

• It increases interest rates

• It invests in stocks

• It borrows from the Federal Reserve

• It ceases operations

What is the relationship between the discount rate and the Federal Funds Rate?

• Federal Funds Rate is higher

• Discount rate is higher

• They are unrelated

• They can influence each other

What is the primary reason for the Fed to raise its rates?

• To boost stock prices

• To reduce taxes

• To increase inflation

• To decrease inflation

How does an increase in the Federal Funds Rate affect consumer loans?

• Makes them more expensive

• Has no effect

• Reduces their availability

• Makes them cheaper

What is a direct consequence of businesses facing higher borrowing costs?

• Increased hiring

• Expansion of operations

• Stock price increase

• Limitation on growth

What typically happens to the stock market when the Federal Funds Rate is raised?

• It generally rises

• It remains stable

• It shows mixed results

• It generally falls

What does the Fed aim to achieve by lowering the Federal Funds Rate?

• Reduce national debt

• Increase government revenue

• Stimulate economic activity

• Increase savings rates

What historical event was mentioned where the Fed lowered rates to boost the economy?

• The 1987 stock market crash

• The 1990 oil price shock

• The 2008 financial crisis

• The 2001 recession