Question

If the Federal Reserve raises the federal funds rate, what will likely happen to certificates of deposit offered by banks?

The interest rate offered will decrease
The interest rate offered will increase
The interest rate will automatically be set to zero
The interest rate will remain the same

Answer 1

The correct answer is The interest rate offered will increase

If they can't give out more loans, then they have to raise their interests so that they can keep earning money.

Answer 2

I believe the answer is: The interest rate offered will increase

In order to raises the federal funds rate, the government need to absorb larger amount of money from the people in the market.

This is why they increase the interest rate for certificate of deposit offered because it most likely attract more people to buy them due to its higher amount of interest revenue.