Question

Why is the Federal Funds Rate so influential on other interest rates?

A. The Federal Funds Rate determines how much consumers can borrow per year. B. The Federal Funds Rate determines how many loans per year a bank can issue. C. The Federal Funds Rate is only important to heavy investors.
D. The Federal Funds Rate determines at what interest rate banks borrow money.

Answer 1

The Federal Funds Rate is only important to heavy investors.

Answer 2

Answer: The answer is (D) The Federal Funds Rate determines at what interest rate banks borrow money.

Step-by-step explanation: We are given four options out of which we are to select which one is the reason for Federal Funds rate being so influential on other interest rates.

Federal Funds rate are so influential because it decides at what interest rate banks borrow money. The Federal Funds rate is the interest rate banks charge each other to lend Federal Reserve funds overnight.

Thus, the correct option is (D).