Question

Determine whether each of the following statements is true or false. The Federal Reserve chooses how much banks lend. The federal funds rate matters only to banks. The Federal Reserve loans money to banks. The Federal Reserve sets a target for the federal funds rate. The Federal Reserve has more influence over short-term interest rates than long-term interest rates.

Answer 1

(a) False. It is completely dependent upon the banks that how much funds they want to keep and how much they want to lend.

(b) False. The federal funds rate also matters to the general public because if there is any changes in these rates then the loans will become expensive or cheaper for the general public.

(c) True. The rate at which federal bank give loans to the commercial banks is known as bank rate.

(d) True. It has an authority and responsibility to set a target for these rates.

(e) True. Federal reserve use these interest rate to control the money supply in an economy.